Insurance Academy

How Much Coverage Do They Really Need?

By Patrick Wraight | October 10, 2018

Ah young love. Isn’t it grand? My oldest son is recently married. Seems like yesterday he was jumping skateboards and bikes in my driveway. Now he’s all grown and on his own. Oh well, as they say, Ob-La-Di, Ob-La-Da life goes on.

Anyway, I bring it up because I’m trying to get him to take some time and get a tenant’s contents policy for his stuff. At first, he didn’t think he had that much. I mean, he had a bed, some clothes, a nasty recliner (sorry, but it’s true), and a tv. That was before the wedding, moving his beloved in with him, and the wedding shower. Now, he’s convinced. It’s still a matter of getting together when we have some time to handle it, but at least it’s on his radar, not just mine.

Here’s the problem. He has no idea what’s all in his apartment. Worse, even if he knew what was there, he has no idea what it’s all worth. I mean, really, how do you value that bean bag chair, the video game console that he used to spend so much time with, or the gecko that used to sit faithfully on his shoulder while he played that video game?

That makes me wonder how often an agent (or a customer) has this same dilemma. How much stuff does someone have and what’s it really worth and how does that contents policy work? Here’s hint number one.

Get replacement cost coverage

It may seem like common sense, but when a person is looking for a contents policy, they need replacement cost coverage. Without it, you are normally looking at an actual cash value policy. Let’s think about my favorite newlyweds with their hand-me-down loveseat. Yeah, it’s the one I bought about 8 years ago new. What do you think that the ACV on an 8-year-old loveseat, even when both sides rock and recline independently. Yeah. It was that good. I’m guessing that after depreciation, we’re looking at a value near $75. What’s that get you? The down payment on a futon that you put on layaway. I know you used to have a futon, too, but like me, you got tired of it after about six months.

Count three important items

How many people live in the dwelling? That will give you a starting place for the value of the clothing in the house. This young couple only has two people living with them (for now). So we’re talking about a young man’s wardrobe and a young woman’s wardrobe. What’s that worth? For my son’s side of things, he has a respectable collection of graphic tees, several pairs of shoes, and a couple of suits for starters. The point is that you need a starting place to think about the value of the clothes in the place. Let’s be honest, for some of us, that amount is pretty high. I’m looking at you, Mr. and Mrs. Professional Couple. There are some of us who spend a lot of money to look like we are wearing hand-me-downs, but that’s another conversation. Find out how many people live there.

How many rooms are they furnishing? You’re giving me that look, and I don’t appreciate it. There’s someone out there that didn’t think about it like that. If you already thought about this point, skip down to the next point. You’re not hurting my feelings any. Each furnished room costs money. Since we already talked about getting replacement cost coverage, we know that the 8-year-old loveseat can be replaced by a newer loveseat. How many of us started out with that college couch that you and your best friend went dumpster diving for? I see that hand. You can put it down now.

The living room costs a pile of cash. The bedrooms cost a pile of cash. The dining room (breakfast nook) costs a pile of cash. You get it. Since every newlywed has their priorities straight, they need to make sure that they estimate that new entertainment center and television properly. I know that my favorite newlyweds had some used furniture, but the TV isn’t used. It’s newer than mine. No. I’m not jealous. I’m just telling the truth.

How many appliances do they own? This is one item that might be a big fat zero. I know my favorite newlyweds and they don’t own any appliances. Yeah. They got rid of the washing machine that we gave them. Oh well, I didn’t need it, either. This is an item that can be overlooked, since most of the appliances in an apartment, or rental house, come with the rental and stay with the rental. I only hope that the landlord has enough insurance to buy new stuff if it gets damaged.

What other stuff do they have?

There’s a room that we completely ignored so far. That’s the kitchen. This particular set of newlyweds has a fully equipped kitchen (thanks for their wedding guests and friends). They also have a pile of stuff that’s supposed to go in the kitchen, but it’s extra so it’s in the spare room, for now. Even though that stuff is extra, it still has a value and could be insured for loss.

There are other items that might need to be considered. What about the young couple’s hobbies? Hobbies might include musical instruments, a few collectable video game consoles, a drone or two, or whatever else might be a hobby.

In the end, getting a tenant’s contents policy is about asking a few pointed questions and helping people to think about what they have. Actually, getting a homeowners’ policy is like that, too. I know most of the time, you just get the quote and the contents limit is based on the replacement cost of the dwelling. What if you actually helped the customer to know how much their stuff was worth so that they could be fully indemnified in the event of a loss?

If all we do is pass along a quote from the carrier, tell me why the customer can’t just go to the app only insurer and get coverage?

About Patrick Wraight

Patrick Wraight, CIC, CRM, AU, is director of Insurance Journal's Academy of Insurance. He can be reached at pwraight@ijacademy.com.

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