Tenants' Misconceptions Abound Regarding Contents Insurance
January 2004
A 2003 survey indicating that over 64 percent
of tenants do not have homeowners insurance. There are many misconceptions about
this important coverage: it is not necessary, it is too expensive, it is narrow
in scope, it is not worth the commission to pursue. These misconceptions are
cleared up and marketing tips provided for selling this important coverage.
by Robin Olson
IRMI
A recently published national telephone survey of 1,000 tenants indicates
that 64.4 percent of these respondents do not have homeowners coverage. Approximately
2 percent were not sure if they had a homeowners policy or not. The survey was
conducted last year by International Communications Research (ICR)—an independent
survey firm based in Media, Pennsylvania—for the Alexandria, Virginia-based
Independent Insurance Agents and Brokers of America (IIABA).
It is amazing to think that nearly two-thirds of the estimated 81 million
people in the United States who are tenants do not have the proper insurance
coverage. This equates to vast amounts of uninsured assets and personal liabilities,
as well as huge commission losses for agents and brokers.
There are a number of reasons why these respondents do not procure homeowners
coverage. They are discussed below.
Myth #1: Coverage Is Expensive
Many of these uninsured respondents believe that this insurance coverage
is too expensive. However, renters or contents insurance, often written on the
Insurance Services Office, Inc. (ISO) HO 4 Contents Broad Form, or the American
Association of Insurance Service's (AAIS’s) similarly titled Form 4, is quite
inexpensive. According to the IIABA, the average premium is $12 per month for
$30,000 in property coverage, $6,000 in loss of use coverage, and $100,000 in
liability coverage.
This premium is actually far less than the price of three vente frappuccinos
per month at Starbucks. Tenants can often save even more money on premium by
choosing a higher deductible, such as $1,000.
Myth #2: Exposure Is Already Covered
Another reason many tenants do not procure a homeowners contents policy is
that they believe that their landlord’s insurance covers their personal property.
However, the apartment owner’s policy covers only the apartment building itself
and common areas and the apartment owner’s liability. It does not cover the
tenant’s personal property or liability exposures. If the tenant’s apartment
burns to the ground, the apartment owner is not responsible for damage to any
occupant’s personal property.
This is why a homeowners contents policy for the tenant is essential. This
policy provides nearly identical coverage for personal property as compared
to the Homeowners 3 Special Form, commonly used to insure single family residences.
Some tenants, such as older college students, may also mistakenly believe
that their personal property is automatically covered by their parents’ homeowners
policy. (This is normally the case for younger students living in college dorms
because a dorm room is usually considered a temporary location.) However, if
the older student’s apartment is their permanent address, even though their
parents may help support them, they generally are not considered an insured
under the parents’ homeowners policy.
Myth #3: Coverage Is Unnecessary
Many uninsured tenants are young people who may not realize the high value
of their clothing, furniture, computers, stereos, and often extensive CD collections.
This is particularly true as they get older and gradually accumulate more personal
property. In addition, many tenants own valuable jewelry, which can be endorsed
onto the homeowners contents policy via the scheduled personal property endorsement.
Myth #4: Coverage Is Narrow in Scope
This policy also covers loss of use in the event of a destructive fire or
another major loss. If there is a loss and the apartment is uninhabitable, the
insurer would pay for the necessary hotel costs until the insured moves into
another apartment.
In addition, the policy provides personal liability coverage. For example,
if the insured, while operating his low horsepower outboard motor boat, negligently
injures another boater, coverage applies under the liability section of the
homeowners contents policy. Another type of personal liability claim might entail
a guest tripping and falling inside the insured’s apartment. Note that the liability
coverage of a homeowners contents policy is nearly always identical to that
of the homeowners special form.
Also, some tenants make improvements to their apartments, such as the addition
of drapes and built-in cabinets. With the homeowners contents policy, up to
10 percent of the personal property limit for additions or alterations to the
dwelling made or acquired at the insured’s expense are covered. Thus, if the
insured has $30,000 in personal property limits, he automatically receives $3,000
in coverage for any improvements or betterments he makes to the apartment.
The Benefit for Insurance Agents
This substantial uninsured populace is a reminder about an agent’s lost opportunity
to earn more commissions and gain customer loyalty. It is true that the premium
and resulting commission is low for the homeowners contents policy. But it is
also true that the administrative costs are low, since the policies are standardized
and do not normally require much servicing. (There are also fewer losses paid
under these policies, since the building itself is not covered.)
In addition, selling a homeowners contents policy can often lead to additional
sales, such as the tenant’s personal auto policy, life insurance policy, and
health insurance policy. Furthermore, if the tenant later purchases a home,
the agent is in a great position to write this expanded coverage.
Here are some ideas for an insurance agent to consider in expanding his or
her marketing opportunities to apartment dwellers.
- Get to know some of the apartment managers in your community.
By showing the manager some of the misconceptions about homeowners
contents insurance and some of the benefits of procuring this coverage,
you may be developing an important advocate. Be sure to leave several
of your business cards with the manager in case he gets inquiries
about this product.
- Consider asking the apartment manager to allow you to hold a
meeting with uninsured tenants regarding the same misconceptions
and benefits of this insurance.
- For prospects or clients living in apartments, make sure you
inquire about their insurance needs and promote the benefits of
the homeowners contents policy. For existing personal auto insurance
clients, a list of apartment dwellers can often be culled from your
agency database. Remember that this cross-selling will assist you
in improving your overall retention percentages.
|
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.