Expert Commentary

Tenants' Misconceptions Abound Regarding Contents Insurance

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.

Personal Lines Insurance
January 2004

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.

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.

Contents Insurance Marketing Tips
  • 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. Expert Commentary articles and other IRMI Online content do 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.

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