A method of self-administering property insurance coverage for protecting
individuals from liability which may arise as the result of excess
wear and tear and/or damage which may occur to a leased apartment
during the lease term includes relieving tenants of providing up-front
cash-based security deposits and providing property managers with
a service product which will generate fees for the property manager
as well as provide guarantees to lessors making use of the service
What is claimed is:
1. A method of providing insurance coverage as a security deposit
guarantee, comprising the steps of: establishing a contractual agreement
between a property manager on behalf of a lessee to insure a leased
apartment and said insurer ready to insure against losses caused
by a lessee which exceed a certain percentage of a gross premium
charge; and providing a policy of indemnity insurance sufficient
to compensate for said possible losses.
2. The method of claim 1, wherein said property manager submits
an application form to an insurer regarding said leased apartment.
3. The method of claim 1, wherein said application form is created
by said insurer.
4. The method of claim 1, wherein said submitting step is carried
out by said property manager.
5. The method of claim 1, wherein said insurer evaluates whether
to agree to the transfer of a proposed risk using an insurance underwriter.
6. The method of claim 1, wherein said insurer communicates information
regarding said proposed risk to said insurance underwriter.
7. The method of claim 1, wherein said property manager receives
a binding commitment from said insurer regarding the acceptance
of said proposed risk.
8. The method of claim 1, wherein said insurance underwriter determines
a quote of a particular monetary amount forming the basis of said
gross premium charge to be collected and managed by said property
9. The method of claim 1, wherein said property manager supplies
a letter of credit (LOC) to said insurance underwriter in an amount
specified by said insurance underwriter.
10. The method of claim 1, wherein said proposed risk relates to
said leased apartment.
11. The method of claim 1, wherein said insurer assures payment
to said property manager, if said losses occur.
12. A method of providing insurance coverage as a security deposit
guarantee, comprising the steps of: executing an agreement for a
leased apartment by a lessor and lessee directing payment of periodic
lease payments to a property manager; collecting said periodic lease
payments from said lessee according to said agreement; and removing
a gross premium charge from said periodic lease payments.
13. The method of claim 12, wherein said agreement incorporates
terms required by an insurance underwriter.
14. The method of claim 12, wherein said insurance underwriter
reviews and approves said agreement.
15. The method of claim 12, wherein said collecting and removing
steps are performed by said property manager.
16. The method of claim 12, wherein said property manager preferably
deposits said periodic lease payments received into an account held
by said lessor.
17. The method of claim 12, wherein the duration of said agreement
is one year.
18. The method of claim 12, wherein the directing step is performed
on a monthly basis.
19. The method of claim 12, wherein proceeds from said gross premium
charge are distributed according to: a guaranteed flat fee of the
total revenue collected is retained by said property manager; a
portion is placed into a fund administered by said property manager;
and a net premium is paid to said insurance underwriter.
20. The method of claim 19, wherein said insurer assures payment
for losses which exceed a certain percentage of said gross premium
charge when said property manager has exhausted both said fund and
said guaranteed flat fee.
21. The method of claim 19, wherein said net premium is utilized
by said insurance underwriter for fronting costs, reinsurance, third-party
administrative costs, and broker fees.
22. The method of claim 19, wherein said net premium payment frequency
23. The method of claim 1, further comprising: inspecting, measuring,
and testing said leased apartment by said property manager in the
event of a claim for damage; determining whether said leased apartment
meets management criteria established by said policy of indemnity
insurance; and computing and providing payment out of a fund for
said claim by said property manager, in accordance with the terms
of said policy of indemnity insurance.
24. The method of claim 23, wherein said property manager generates
periodic management reports for the benefit of said insurance underwriter.
25. The method of claim 23, wherein said claim for damage arises
from one or more selected from the group consisting of a default
on periodic lease payments, damage to said leased apartment, and
destruction of said leased apartment.
26. The method of claim 24, wherein said periodic management reports
document gross and net premium charges and said payment from said
BACKGROUND OF THE INVENTION
 1. Field of the Invention
 The present invention relates to a method of self-administering
property and liability insurance coverage for leased, (i.e., rented)
principal residential premises in lieu of requiring a lessee (i.e.,
tenant) to provide a security deposit. This insurance strategy results
in relieving a lessee from having to provide an up-front cash-based
security deposit payment and from being liable for any incurred
accidental damage to the premises while still protecting a lessor
(i.e., landlord) against physical damage loss events.
 2. Description of the Prior Art
 In creating the lease relationship and lease agreement,
the lessor will typically require a security deposit from the prospective
tenant. The term "security deposit" means the pledge of
property, money, or some additional obligation of a tenant to secure
an obligation. The security deposit functions to offset any outstanding
debt associated with the lessee. Security deposits mitigate risks
associated with non-payment and lease non-compliance, and function
to ensure the safe return of the property at the end of an agreement
term. For example, leased premises must be maintained and delivered
back to the lessor in relatively good condition. In this regard,
security deposits ensure that lessees are held financially responsible
for any wear and tear which is in excess of normal wear and tear,
including post-warranty repairs. Lessors require cash-based security
deposit payments to be made prior to the transfer of property or
other similar rights.
 In many instances, however, security deposit payments present
sizable barriers to entry for many consumers. Every year millions
of people are unable to move into their new apartments because they
are unable to make security deposit payments to lessors. It is often
difficult and inconvenient for a lessee to advance finds in a lump
sum manner for security deposits upon execution of the lease agreement.
For example, a person may meet every lessor screening test in regard
to the rental of a new apartment, but not be allowed to execute
a lease agreement with the lessor because the person cannot make
a security deposit payment equal to one or two month's rent. Moreover,
lessees may also find themselves with substantial liability upon
termination of their lease relationship with the lessor. Oftentimes,
the ultimate responsibility for the care and well-being of the leased
premises is placed upon the property manager. Therefore, when the
damage to the property exceeds the amount provided as a security
deposit, the property manager is often forced to pay the excess
damage costs out of their own income. This can lead to a financial
hardship and an unexpected financial burden to property managers.
 In addition, the legalities associated with the maintenance
of a security deposit throughout the duration of the lease agreement
can be onerous. Generally, states hold lessors to strict guidelines
as to when and how to return security deposits. Lessors are typically
required to place the deposits in a separate account, paying tenants
any accrued interest on the deposits within 30 days after the termination
of the tenancy. The rules vary from state to state, but lessors
usually have a set amount of time in which to return deposits, usually
14 to 30 days after the lessee vacates the premises, either voluntarily
or by eviction. Lessors may normally make certain deductions from
a tenant's security deposit, provided they do it correctly and for
an allowable reason. Many states require lessors to provide a written
itemized accounting of deductions for unpaid rent and for repairs
for damages that go beyond normal wear and tear, together with payment
for any deposit balance. Lessors who violate these laws can be held
to stiff penalties.
 In the prior art, methods of guaranteeing a security deposit
have been attempted to release lessees from the burden of having
to provide cash-based security deposits while assuring lessors of
protection against financial loss. For example, U.S. Pat. No. 6,208,978
entitled "System and Method for Issuing Security Deposit Guarantees
Based on Credit Card Accounts" issued on Mar. 27, 2001 to Walker
et al. discloses a data processing system coupled to a data storage
system that enables consumers to obtain security deposit guarantees
from their credit card issuers in accordance with private agreements
such as a lease agreement in lieu of providing a cash-based security
deposit to the lessor at the inception of the lease agreement. This
guarantee cover issued by the lessee cardholder's credit card issuing
bank or credit card issuer functions to provide the lessor with
an adequate assurance of security and lease agreement compliance
in the event that the cardholder does not fulfill his tenant obligations
as defined in the agreement. In the event that a lessor makes a
claim to the credit card issuer system within thirty days after
the end of the lease term, the amount of the claim is charged to
the lessee's credit card, thereby causing the credit card issuer
system to make a payment to the lessor. Many of these methods have
not been satisfactory over the long term, due to insufficient credit
limits, high interest rates, a potential for a debt trap, and other
 While many insurance products and services exist to limit
one's liability and/or to provide monetary protection upon the occurrence
of certain events, no corresponding insurance coverage exists which
functions as a guarantee to lessors instead of providing a security
deposit. In a similar manner, no insurance coverage exists which
is administered solely by an entity to the lease transaction, namely
the property manager, thereby providing the property manager with
control over claim adjudication regarding a leased premises directly
under his management, as well as entitling him to an additional
source of revenue through an administrative fee. Furthermore, no
insurance mechanism exists which effectively transfers the risks
associated with covering accidental damage from a tenant to a property
 Accordingly, there exists a need for a method which overcomes
the shortcomings of the prior art and allows lessees to enter into
a lease arrangement without requiring a security deposit. Without
such a method, many potential lessees will continue to be prevented
from acquiring access to properties that require security deposits.
To be effective, such a method must enable consumers to utilize
the insurance premium payments as a substitute for the often sizeable
lump sum security deposit collected at lease signing and at the
same time assure lessors that the lessee has a stake in the maintenance
of the leased apartment, thereby providing lessors with protection
against financial loss.
OBJECTS AND SUMMARY OF THE INVENTION
 It is therefore an object of the present invention to provide
a method for providing insurance policies, products, services, and/or
coverage for leased premises for providing insurance protection
against liability which may arise as the result of excess wear and
tear and/or damage which may occur to a leased apartment during
the lease term.
 It is therefore a further object of the present invention
to provide a method for providing insurance policies, products,
services and/or coverage for leased premises for providing insurance
protection against liability which may arise as the result of post-warranty
 It is therefore a further object of the present invention
to provide a method for providing insurance policies, products,
services and/or coverage for leased apartments.
 It is therefore a still further object of the present invention
to provide a method for providing insurance policies, products,
services and/or coverage which effectively transfers the risks associated
with covering accidental damage from a tenant to a property manager.
 It is therefore a final object of the present invention
to provide a method that enables property managers to utilize an
insurance policy to obtain a security deposit guarantee from lessees
in accordance with lease agreements that is accepted by lessors
in lieu of cash-based security deposit payments that typically have
been required prior to the transfer of property.
 These and other objects can be attained by creating a novel,
fully insured, self-administered method in which the property manager
is solely responsible for adjudicating and administering claims.
This method allows a tenant to transfer risk to a property manager,
thereby causing the property manager to assume responsibility for
all incurred accidental damage. In conventional lease insurance
policies, the tenant pays an initial sum or premium directly to
the insurer which corresponds solely to the costs of insurance,
i.e. to the amount the insurer demands in order to cover the risks
during the period of the contract, generally one year. However,
in the present method, the property manager is responsible for managing
the insurance policy. In this regard, the tenant is required to
pay a flat fee each month to be used by the property manager to
establish a loss fund from which the property manager effects payment
for damages sustained to the property. For his convenience, the
tenant pays this predetermined monetary amount, or gross premium,
as part of his monthly lease payment instead of providing the lessor
with a large sum in advance of taking possession of the premises.
The insurer only plays an active role in the insurance scheme when
it is contacted to assume coverage for benefit payments exceeding
a certain percentage of the gross premium in a particular policy
 For the tenant, this method of insurance has the advantage
of increasing available cash because instead of paying a lump sum
at the inception of the lease agreement, an affordable insurance
charge is calculated into his monthly lease payment. Also, with
the flat fee program, the tenant receives protection up to a certain
benefit amount for eligible losses to the contents of a leased unit.
In addition, data and information related to the tenants, including
use habits and leasing histories do not have to be communicated
to the underwriter. Rather, the underwriter evaluates the property
manager. For property managers, this method of insurance coverage
presents the advantage of protecting them from having to pay for
damage to the leased units out of their own pocket. Moreover, due
to the self-administered nature of the program, property managers
are entitled to an extra source of income through the administrative
fees and the retention of any leftover funds in the loss account.
Furthermore, the lessor is confident that his interest in the premises
is fully protected. The lessor is provided with assurances that
the tenant will abide with the terms of an appropriate lease agreement
because a fund will be created from which the lessor is guaranteed
to obtain payment for damages caused by the tenant during his occupancy
of the leased property.
 Accordingly, the present invention provides a method of
self-administering property insurance coverage for protecting individuals
from liability which may arise as the result of excess wear and
tear and/or damage which may occur to a leased apartment during
the lease term, and further, for protecting individuals from liability
for post warranty repairs. More specifically, it is an object of
the present invention to provide a method that enables a property
manager to utilize an insurance policy to obtain a security deposit
guarantee in accordance with a lease agreement in lieu of a cash-based
security deposit payment that traditionally has been required prior
to the transfer of property.
 In such a case, the property manager registers a particular
leased apartment for the flat fee program by completing an application
form created by the insurer. The property manager has the option
of offering the program to a tenant on either a voluntary or a mandatory
basis. The voluntary plan permits the tenant to choose whether to
purchase the program for a specified monetary amount. On the other
hand, the mandatory plan is provided to the tenant as a service
at no additional cost to the tenant. In either option, the flat
fee program outlined in the present invention could be subject to
other applicable housing laws. The insurer then negotiates and structures
the insurance coverage with the underwriter. After reviewing the
lease agreement and depending on a set of other parameters (such
as the risks associated with the particular leased premises), the
underwriter will provide a premium quotation for the insurance coverage
to the property manager. The property manager incorporates the gross
premium charge determined by the underwriter into the lease agreement
so that it becomes a part of the required monthly lease payments.
The gross premium is divided by the property manager into three
parts. First, a fiduciary account is established as a loss fund
whose proceeds in turn are used to satisfy any current and future
debts of the tenant. Additionally, the property manager charges
the tenant a monthly or periodic administrative fee to maintain
the guarantee. Lastly, a portion of the gross premium is paid to
the underwriter as a net premium charge.
 Thereafter, the property manager is solely responsible for
managing a claim for damage and payment for the losses associated
therewith. The tenant reports an incident directly to the property
manager who is in charge of the claim process. The property manager
assesses the property damage and determines whether it warrants
insurance coverage. If the damage is covered under the insurance
policy, the property manager remits benefit payment from the loss
fund. Additionally, pursuant to the insurance policy, the insurer
provides the property manager with a guarantee that it will indemnify
the property manager if the total covered claims that occur in a
specified policy period exceed a certain percentage of the gross
premium generated in that policy period. This coverage guarantee,
referred to as stop loss coverage, will remain in effect during
the term defined in the lease agreement. Stop loss coverage is only
triggered if the property manager has exhausted both the loss fund
and his earned administrative fees. Lastly, the property manager
provides the underwriter with monthly management reports detailing
the premium and damages paid out of the loss fund.
BRIEF DESCRIPTION OF THE DRAWINGS
 The following detailed description, given by way of example
and not intended to limit the present invention solely thereto,
will be best understood in conjunction with the accompanying drawing
figures, in which:
 FIG. 1 is a detailed schematic flowchart illustrating a
method for generating and issuing an insurance policy in accordance
with the present invention;
 FIG. 2 is a detailed schematic flowchart illustrating a
method for creating and managing a lease agreement in accordance
with the present invention; and
 FIG. 3 is a detailed schematic flowchart illustrating a
method for self-administering property and liability insurance coverage
in accordance with the present invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT
 Referring now to the drawings in greater detail in which
like numerals indicate like elements throughout the several views,
FIG. 1 depicts therein a flowchart illustrating a method for generating
and issuing an insurance policy in accordance with the present invention.
Referring to FIG. 1, the present invention begins with a property
manager 10 preparing and submitting a completed application form
12 to an insurer 14. The step of completing and forwarding the application
form 12 to the insurer enables the property manager to register
a particular leased apartment for the flat fee program, thereby
putting the program into motion. An underwriter 16 is then engaged
to facilitate the provision of insurance between the property manager
and the insurer. The insurer submits to the underwriter data and/or
information 18 which is relevant to determining insurance policies
and premiums for principal residential premises.
 Data and/or information 18 related to the lease of principal
residential premises includes type and age of premises, parts and/or
components and/or systems of the premises along with their repair
costs, replacement costs, probability of damage, probability of
post-warranty repairs necessitated by wear and tear, damage, malfunctioning
components and/or systems and defects in materials, parts, components,
systems and/or workmanship, average costs for repairs, historical
leasing data, including typical repair costs and average total excess
wear and tear costs for the entire premises. Premises leasing data
and/or information also includes locality, regional and geographical
data which is correlated with excess wear and tear along with data
and/or information which is related to use habits and/or patterns
in a given area or areas.
 At step 20, the underwriter will formulate an insurance
policy 22 and corresponding appropriate gross premium charge 24.
This insurance policy protects a tenant from damage to the apartment
which results from theft or an accident within the unit. The policy
does not cover negligent or willful and wanton conduct. At step
26, the policy can then be presented to the property manager for
acceptance. The property manager may then, at step 28, accept or
reject the insurance policy. Although the property manager obtains
the insurance policy on behalf of the lessee, the lessee typically
does not execute the policy. Rather, the tenant typically only receives
a certificate of coverage in paper form confirming coverage and
informing him of the nature and extent of the insurance protection.
The property manager is the actual policyholder. Upon acceptance
of the insurance policy, the property manager incorporates the terms
required by the underwriter into a lease agreement 30 drafted by
a lessor. The lease agreement is then reviewed 32 by the underwriter
for compliance with his terms. If the underwriter approves of the
lease agreement, the lessor and lessee execute the agreement. When
the lessee executes the agreement, risk has been effectively transferred
from the tenant to the property manager. The lessee will have no
liability for accidental damage to the property. In addition, the
property manager is required to supply a Letter of Credit (LOC)
34, promising to provide the underwriter with a predetermined amount
that is calculated to be sufficient to cover the identification
of damage to the premises and costs associated with repair and replacement
in the event that the damage to the premises in a particular policy
period exceeds a certain percentage of the gross premium charge,
thereby invoking the underwriter's guarantee to indemnify the property
 FIG. 2 is a flow diagram that illustrates the process for
creating and managing a lease agreement in accordance with the method
of the present invention. Referring to FIG. 2, a monthly lease payment
36 is received by the property manager. The property manager then
extracts the gross premium 38 from the lease payment and preferably
deposits the remainder directly into a bank account of the lessor
40. The property manager is entitled to a guaranteed flat fee of
the total gross premium as an administrative fee 42. A predetermined
net premium 44 is paid to the underwriter for fronting costs 46,
reinsurance 48, third-party administrative costs 50, and broker
fees 52. The remaining funds are placed into a fiduciary account
as a loss fund 54 administered by the property manager. The fiduciary
account constituting the loss fund financed by the gross premium
is established to satisfy debts for damages 56 incurred on a continuing
 At the end of the year, the property manager preferably
retains the remainder 58 in the loss find. Three months after the
policy period has ended, thirty percent of the amount remaining
in the loss fund for that particular policy term is available for
use by the property manager. The balance will be divided into two
equal installments at six months and nine months after the specified
policy term has ended. During this time, additional finds should
typically already be available to pay claims for the new policy
period due to additional sales that have taken place within the
initial ninety day waiting period. If the property manager decides
not to renew the insurance policy or the policy is canceled, seventy
percent of the available loss find money must remain untouched for
twelve months after the termination date of the program. This is
to ensure that adequate monies exist in the loss fund to cover any
damage sustained by the premises for at least the remainder of the
lease term, which is typically one year. Because the end of a policy
period may not always coincide with the end of a lease agreement,
the property manager is not permitted to deplete all of the remaining
finds in the loss account until the lessor's right to indemnity
from the lessee for damage to the premises has expired.
 FIG. 3 is a flow diagram that illustrates the process for
self-administering property and liability insurance coverage in
accordance with the method of the present invention. When a claim
for damage 60 is reported, the property manager is responsible for
inspecting, measuring, and testing the property 62 in order to determine
whether the property meets the management criteria for coverage.
If the policy coverage is triggered 64, the property manager will
assume responsibility for the damage, and effect payment 66 for
the excess wear and tear and/or damage out of the loss fund, in
accordance with the terms of the insurance policy. If, however,
coverage is not triggered at step 68, the property manager will
have no liability at step 70. If the total covered claims that occur
in a specified policy period exceed a certain percentage of the
gross premium generated in that policy period 72, stop loss coverage
is activated 74. Stop loss coverage is provided so that the property
manager has protection against large or catastrophic losses. If
this occurs, the insurer will reimburse 76 the property manager
for covered claims in excess of 75%, not exceeding $1,000,000, in
a policy period. Stop loss coverage is only triggered if the property
manager has exhausted both the loss find and his earned administrative
 In addition, the property manager is responsible for compiling
monthly detailed management reports 78 for the benefit of the insurance
underwriter 80. These reports include complete informational indicia
on the insured portfolio such as the physical address of the property,
amount of covered damages paid out of the loss find, and premium
amount. Upon expiration of the term of the lease agreement, the
tenant may request a new lease agreement. If the new lease agreement
is requested, a new insurance application is received. If a new
lease agreement is not requested, the program terminates.
 Those of ordinary skill in the art will recognize that the
present invention makes advances in the area of lease management.
The present invention provides a method of self-administering property
insurance coverage for protecting individuals from liability which
may arise as the result of excess wear and tear and/or damage which
may occur to a leased apartment during the lease term, and further,
for protecting individuals from liability for post warranty repairs.
The method dispenses with the traditional security deposit mechanism,
which frequently creates an extreme financial burden on a lessee,
and replaces it with an insured mechanism in which the lessor is
still assured of coverage for any incurred property damage. Throughout
the lease, maintenance of the leased apartment through the administration
of insurance coverage is solely the responsibility of the property
manager. The insurer functions to provide an insurance guarantee
to cover benefits for claims which exceed a certain percentage of
the gross premium in a particular policy period.
 Thus, having fully described the present invention by way
of example with reference to the attached drawing figures, it will
be readily appreciated that many changes and modifications may be
made to the invention without departing from the spirit or scope
of the invention which is defined in the appended claims.