[Real Estate AtoZ] Jeonse Deposit Guarantee Insurance, Is It Necessary to Get?

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[Asia Economy Reporter Ryu Taemin] Recently, as the so-called ‘empty-can jeonse’ situation continues, where jeonse prices exceed sale prices, the number of tenants unable to get their jeonse deposits back is increasing.

The Housing and Urban Guarantee Corporation (HUG) announced that the jeonse deposits returned to tenants on behalf of landlords last year amounted to 924.1 billion KRW. This shows a steady increase from 441.5 billion KRW in 2020 and 504 billion KRW in 2021.

What Exactly Is Jeonse Deposit Guarantee Insurance?

The key here is the ‘Jeonse Deposit Guarantee Insurance.’ As the name suggests, this insurance provides a type of guarantee to tenants who cannot get their deposit back on time.

If the landlord does not return the jeonse deposit after the contract expires, the guarantee institution pays the deposit on behalf of the landlord and later claims the amount from the landlord. Even if the jeonse house goes to auction, the tenant can recover the deposit through the guarantee insurance.

To receive jeonse deposit guarantee insurance, moving-in registration and a fixed date certificate must be completed first. The fixed date certificate is the date entered on the lease contract. It is legally recognized once confirmed by the court or community service center and stamped with the corresponding date.

Moving-in registration must also be completed. Moving-in registration is reporting to the relevant authority such as the community service center that you have moved to a new residence, and it must be done within 14 days after moving in.

Return Guarantee vs. Repayment Guarantee: What’s the Difference?

There are two types of guarantee insurance: repayment guarantee and return guarantee. Repayment guarantee is a method where the guarantee institution repays the jeonse loan on behalf of the tenant. If the tenant cannot get the jeonse deposit back, it becomes difficult to repay the loan. In this case, the guarantee institution steps in to repay the loan to the bank on behalf of the tenant. This mainly serves to protect the bank.

Return guarantee is a structure where the guarantee institution returns the jeonse deposit to the tenant on behalf of the landlord. The tenant can use the returned deposit to repay loans or move out. Since it ensures a more reliable return of the jeonse deposit, return guarantee is generally more recommended.

HUG vs. SGI: Which Guarantee Institution Should You Choose?

There are several institutions that provide guarantee insurance. Among them, the representative institutions are the Housing and Urban Guarantee Corporation (HUG) and Seoul Guarantee Insurance (SGI).

HUG offers the product called ‘Jeonse Deposit Return Guarantee Insurance.’ SGI provides ‘Jeonse Deposit Credit Guarantee Insurance.’ Both products are return guarantee types where the guarantee institution returns the deposit to the tenant.

The types of residences eligible for both products are similar. Detached houses, multi-family houses, row houses, multi-unit houses, and apartments are eligible. Residential officetels are also eligible, but only if a licensed real estate agent specifies on the jeonse contract that it is used for residential purposes. Separately, SGI’s Jeonse Deposit Credit Guarantee Insurance also covers urban lifestyle housing.

The maximum jeonse deposit amount eligible for subscription differs. HUG’s Jeonse Deposit Return Guarantee Insurance is divided by region. In the metropolitan area, it is available for deposits up to 700 million KRW, and in non-metropolitan areas, up to 500 million KRW. On the other hand, SGI’s Jeonse Deposit Credit Guarantee Insurance varies by residence type. There is no price limit for apartments, and for other residences, it is available up to 1 billion KRW.

Finally, the timing for subscription also differs. To subscribe to HUG’s Jeonse Deposit Return Guarantee Insurance, the total contract period must be at least one year, and more than half of the jeonse contract period must remain. SGI’s Jeonse Deposit Credit Guarantee Insurance requires that at least one year remains on the jeonse contract period, and the lease contract must not have been signed more than 10 months ago to be eligible.