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Home owner’s insurance has limits: Property Coverage Limits

People always tout the importance of having a comprehensive homeowner policy but there’s much more to it than just signing your name on a document. As a homeowner, you’re responsible for protecting the structure of your home and other buildings on your property but what about the contents of your house? Have you ever considered what would happen if a fire destroyed your kitchen or worse, your entire house? You can always rebuild another house or move to another neighborhood but many times it’s hard to replace the contents of a house. Setting the right coverage limits for personal belongings will make it easier to rebuild and replace the things that make a house a home.

Insuring your Personal Belongings

In a house, it’s your possessions that turn hardwood floors and drywall into a place you can really make memories. You need to protect them with insurance and you can do that in two ways.

  • Actual Cash Value: This coverage will only cover your belongings for the amount of money it was worth at the time it was destroyed. Let’s look at a couch for example. Vice President of the Insurance Information Institute (III) Loretta Worters explains: “Say you purchase a sofa 10 years ago. Today, to buy new, maybe that sofa would cost $3,000 or $4,000. With actual cash value coverage, if it’s a 10 year old sofa, they’re taking the value to be maybe $500.” That means you’re shopping at the thrift store for your new couch.
  • Replacement Cost: This type of coverage will provide you with a benefit that will allow to replace your sofa with one that is of equal value. It’s true that this option is more costly but it’s worth it. Keep in mind that it doesn’t cover normal wear and tear and will have to be damaged under certain covered losses. And of course the insurance company won’t let you take the money and run. It’s a requirement that the money you receive to replace your sofa is actually spent on a sofa so you may have to provide evidence of purchase.

Determining the Value of Personal Belongings

Although experts recommend purchasing replacement cost, how are you supposed to know just how much your couch is worth? Many times, you buy a used piece of furniture at an amazing discount or sometimes people will gift you furniture, especially if you’re moving into your first place. Nobody knows the exact dollar amount of every single item in a home so a generalized method for determining cost has been developed. It’s called the 200 percent method.

You still need to walk around your house and estimate the value on large items, especially things like televisions, computers, and furniture. If you can’t come up with a specific number, try to find similar models available for sale today. That should give you an idea of how much your possessions are worth. Once you’ve totaled up all this information, double it. This will ensure that you’re coverage limit is high enough to replace all the large, expensive items in your home as well as the little things that you don’t think about. Towels are more expensive than you think!

What About Valuable Personal Property?

Some individuals acquire valuable personal belongings over the years that even the standard 200 percent method won’t cover. How do you make sure that these items are protected in the event of a disaster? There are three ways that you can make sure your personal belongings are protected at all times.

#1: Raising Your Dollar Limit

Consider it the 300 or 400 percent method. You can always raise your coverage limit to provide a higher dollar value of protection but it will cost extra. Fortunately, it normally doesn’t require a lot of extra money to raise your limit by $10,000 or $15,000 per year so adding extra protection should be easily managed. The only problem is that this won’t protect you if your valuable item is damaged in an excluded cause of loss.

#2: Special Perils Coverage:

This is one way to make sure that you get the coverage you need. Under special perils coverage, the covered causes of loss are expanded giving you more flexibility for claims. Some instances, such as floods and earthquakes, which require more specialized insurance, still aren’t covered but if the cat knocks over your entire entertainment system, you’re covered. The cat on the other hand, should start looking for a new home.

#3: Scheduling Your Property:

This is the surefire way to ensure that you have the best protection on your valuable belongings but it does take some work. Normally, this kind of coverage is reserved for very expensive items like jewelry, antiques, art, and expensive electronics. You’re required to determine a value for each item that you want scheduled. This may involve the expertise of an appraiser to get a legitimate value the insurance company will accept. Once your items are scheduled, your premium is determined by the total amount. With this kind of coverage, more causes of loss are covered and you have an easier claims settlement if something does happen. Keep in mind that certain items may include their own specific causes of loss.

If you have any questions about your insurance policy, just consult with your agent. The quirks of an insurance policy can be hard to understand but an insurance agent will help you decipher the language. If you want some help in determining the value of your belongings, visit the III. They have a handy tool you can find at www.knowyourstuff.org that can help you with your room inventory checklist. Moving into your first home can be a lot of fun but losing everything you own is a nightmare. Protect it with a comprehensive homeowner policy.