Whether your insurance company replaces everything you lose depends on your individual homeowners or renters policy, the reason behind the loss or damage of property, and the type of coverage you have selected. Most homeowners and renters insurance policies provide coverage for losses due to tornadoes, fires, or theft. However, if you live in a flood or hurricane zone, you may need to purchase separate insurance to cover loss of property or personal belongings due to those events.
Before purchasing homeowners or renters insurance, it is important to understand your options. Generally, there are two types of coverage—replacement cost coverage or actual cash value. Replacement cost coverage provides you with the dollar amount needed to replace any personal belongings. Actual cash value, on the other hand, provides coverage equal to the replacement value of your belongings minus the cost of depreciation. Unless you specify otherwise, most policies provide actual cash value coverage. While replacement cost coverage costs more in premiums, it may be worth the extra cost if you ever have to file a claim—particularly if the cost of replacing your belongings would be high.
A typical homeowners’ policy provides coverage for about 50 to 70 percent of the amount of insurance you have purchased for your home. Bear in mind that most insurance companies will not cover the full value of high-dollar items like expensive jewelry, antiques, artwork, or other valuables. Find out what dollar limits your insurance company sets for these items. If the amount is too low, consider purchasing a separate rider, or “floater,” which allows you to insure valuable items separately. If you decide to purchase a separate rider, consider insuring your expensive belongings at their appraised values.
Make sure you inventory your belongings by taking pictures or videotaping them. You may want to gather purchase prices, dates of purchase, serial numbers, and any other identifying information so you can easily establish the dollar value of your loss if you need to file a claim. It also is a good idea to maintain this information in a safe location other than your residence. For more information, see this blog at Families.com.
