Coverage Corner

THE MOST OVERLOOKED RENTERS’ INSURANCE COVERAGE

By Bill Wilson

Like many young people, after graduating from college I rented an apartment for six years before I had enough money and credit to buy a house. For three of those years, I rented an apartment in a complex that had 12 to 16 units in each two-story building.

A tenant whose apartment was on the first floor of one of the 12-unit buildings in the complex was starting his charcoal grill on his patio when his phone rang. Being distracted for several minutes while on the call, he did not realize that the flames from his grill had spread to the balcony above him, then into the roof space above the second-floor unit, quickly racing down the entire length of the building.

To make matters worse, it was later determined that the building lacked attic fire stops, and when the fire department finally arrived, they discovered that the water supply was inadequate to control a fire of this size. The building was a total loss, as were the contents of the renter and the other 11 tenants. Fortunately, no one was injured.

According to a local television station’s news broadcast that evening, not a single tenant they interviewed had renters’ insurance, including the tenant who started the fire. The news coverage on every station focused entirely on the lack of first-party property insurance. From the negligent tenant’s perspective, this missed the most important coverage in most renters’ policies … liability coverage.

Today, the likely amount of property damage for a claim like this would probably be in the $3M range. How many tenants with renters’ insurance carry $3M in liability coverage? Almost certainly far less than 1% of tenants have renters’ insurance and a personal umbrella policy. In many ways, the liability of an apartment dweller is potentially greater than that of a private homeowner.

When my son moved into his first apartment, the management required renters’ insurance. If a tenant didn’t have his or her own coverage, the management company had an arrangement where such coverage could be bought online from an affiliated broker and the policy actually could be reviewed before purchase.

When I looked at this non-ISO form, I saw that it covered very limited basic named perils with few additional coverages and only $50,000 in liability coverage. This amount of coverage is grossly inadequate for a residency in a multi-unit apartment building with a swimming pool. So, I insisted that my son procure an open perils renters’ policy with replacement cost personal property coverage. He already had a personal umbrella policy that included his auto policy as underlying coverage.

When selling renters’ insurance, do you stress the importance and value of the liability coverage in the policy? Do you offer higher liability limits or, better, an umbrella policy that can extend over the insured’s renters and auto policies? Do you have a “minimum limits” standard for all coverages you sell?

In addition to liability coverage, given that rental space is limited in some areas or available only at a premium, do you offer higher limits of Additional Living Expense coverage in the event that a renter is forced to move out of an apartment?

Admittedly, the commission on a renters’ policy is low, but today’s renter is often tomorrow’s homeowner. In the meantime, consider that most renters also have autos, and all of them are umbrella policy prospects. Also, given the cost of rentals today, it is not unusual for two or more people to rent a home or apartment, and these are potential customers as well.

Bill Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including the Amazon 4.8 star “When Words Collide…Resolving Insurance Coverage and Claims Disputes” which BookAuthority ranks as the #1 insurance book of all time. He can be reached at Bill@InsuranceCommentary.com.