Your home is likely your greatest asset, and insuring it is essential to protecting yourself from devastating financial loss. Because homeowners insurance is so important, you should take some time to familiarize yourself with your policy and make sure that you understand what it covers—and what it does not.
Most homeowners policies consist of four types of coverage: dwelling coverage, other structures coverage, personal property coverage, and loss of use coverage.
Perhaps because the value or replacement cost of the physical structure of a home is easier to quantify and represents the most significant potential for loss, many people will focus their attention on the dwelling coverage portion of their homeowners insurance policy. How much should I insure my home for? Would I be able to rebuild if I had a total loss? If I couldn’t rebuild, where would I live? All of these questions are important and should be addressed by your homeowners insurance.
Whether or not you could replace the belongings in your home in the event of a loss is just as important a consideration. The sheer number of things that you have may make it seem impossible to truly quantify, but having the right amount of coverage for the contents of your home may make all the difference in how completely you can recover from a disaster.
Your homeowners insurance provides personal property coverage for loss or damage to your personal belongings, or the contents of your home. This includes clothing, furniture, appliances and most other items in your home. Most homeowners policies provide coverage for your personal possessions for approximately 50% to 70% of the amount of insurance you have on the structure or dwelling. In many cases, this amount may not be enough.
The best way to determine if you need more personal property coverage is to take a personal property inventory. A personal property inventory is a detailed list of everything you own and how much it would cost to replace each item.
Basic homeowners policies limit coverage for certain types of high-value personal property—jewelry, furs, stamps, coins, guns, computers, antiques, artwork or other items. Your policy probably has limits for certain categories of items (e.g., jewelry coverage limited to $2,000). If you have high-value items in excess of these limits, you will need to add a scheduled personal property rider to your basic homeowners insurance policy to make sure that you would be reimbursed for their full value in the event of a loss. You can choose to increase the limit on a particular category of items (e.g., jewelry coverage limit to $10,000) or for specific individual items. You will need to provide a receipt or appraisal for items that you wish to place on a scheduled personal property rider.
Your homeowners policy will cover your personal property on an actual cash value or replacement cost basis.
Actual cash value pays to replace your home or possessions minus a deduction for depreciation, up to the policy limit.
Replacement cost coverage will reimburse you for the actual cost of replacing the item or items with no deduction for depreciation up to the specified policy limits.
Replacement cost coverage generally costs about 10% more than actual cash value coverage, but it will be worth it in the event that you would have to replace your possessions.
Your possessions are just as important to you as the structure of your home. Don’t neglect to insure them properly and understand how your personal property coverage works. Do you know how much personal property coverage you have? Do you have scheduled personal property coverage for your valuables? Can we help you prepare a home inventory?