|
 If you own a home or rent an apartment, then you probably have the home insured. An often ignored section of your homeowner's insurance policy has to do with personal property insurance. That's unfortunate because if you file a claim, then you might be surprised at the response you get from your insurance carrier.
Personal Property Insurance Basics
Personal property insurance is just one of several different types of coverage offered within your homeowner's insurance policy. Personal property insurance pays for the things you have in the home that are not "permanently" attached to the structure itself. This includes items such as furniture, clothing, and household appliances such as refrigerators, washing machines and clothes driers.
Most homeowners policies will automatically cover your personal property - depending on the carrier, up to 40% of the amount of insurance that you have on the home itself. For example, if your home is insured for $200,000, then the personal property, or contents of the home, is insured for $80,000. Now that may sound like a lot of money, but there are several things you need to watch out for.
Actual Cash Value versus Replacement Cost
Perhaps the single most important aspect of personal property insurance has to do with actual cash value versus replacement costs. The best way to explain this concept is to use an example.
Cash versus Replacement Cost Example
Let's say that your refrigerator cost you $700 five years ago when it was brand new. Because that refrigerator has been used for five years, it's no longer worth $700; it's been depreciated in value. Let's also assume that the average refrigerator lasts for ten years. That means the actual cash value might be around $700 x (5 years / 10 years) (half its useful life) or $350.
If your insurance policy covered personal property at actual cash value, then you'd get paid or reimbursed $350 for a refrigerator that might cost you $1,000 to replace today. That's where the concept of replacement cost came from. If the terms on your policy were for replacement cost, then your insurance company would pay you $1,000, not $350.
Replacement cost is usually available as an endorsement to your personal property insurance. There is a cost for this added insurance but the additional premium is well worth the cost if you ever need to file a claim.
Items Not Eligible for Replacement Cost
Even if you purchase a replacement cost rider or endorsement, there may be some items that are not covered under personal property. Items not eligible for replacement cost generally fall into one of two categories:
- Antiques / Rare Items - these are items that are not easily replaced at any cost. This includes fine art, paintings, collector items and souvenirs.
- Outdated Items - this includes items that are obsolete or not in workable condition.
Limits on Replacement Costs
In addition to the items not eligible for replacement, there may be items in your home that are covered by replacement costs only if these are specifically identified in a separate endorsement. For example, personal property insurance may limit the claim amount on jewelry unless you have specifically identified the item and had its value professionally appraised.
For many married couples, this limit might apply to something like a diamond engagement ring, which might be worth considerably more than the jewelry limit specified under the personal property section of your homeowners insurance policy. Unless the ring is appraised and specifically identified on a scheduled personal property endorsement, then you may not be paid the full replacement cost of the ring.
This same limit can apply to other items of value such as fur coats, cameras, musical instruments, silverware, and even golf equipment.
Valuing Personal Property
Earlier we mentioned that many insurance companies use a value of around 40% as an estimate of the replacement cost of the personal property in a home. There is no doubt this figure was based on a study conducted years ago and there's also no doubt that the 40% figure doesn't work for everyone.
Personal Property Spreadsheet
You can usually purchase additional personal property insurance and you should if you have a good basis for valuing your personal property. Attached is a simple Personal Property Worksheet that you can complete. That worksheet can accommodate up to 500 individual items found in your home.
If you're serious about valuating your personal property, then completing this home inventory is one of the best ways to develop the estimate. In fact, the inventory itself is useful when submitting insurance claims.
Tips for Valuing Personal Property
Finally, here are some tips to help you with your inventory of personal property:
- Keep all sales receipts of major purchases.
- Take a video inventory or photographic inventory of your personal property.
- Keep your personal property valuation worksheet, photographs and video in a safe place.
- If at all possible, keep your personal property inventory list, along with photos and/or inventory videos, in a safe and secure place away from your home such as a bank safe deposit box or a fireproof safe.
About the Author - Personal Property Insurance
Copyright © 2006 - 2007 Money-Zine.com
Buying Insurance Resources on the Web |
Home 
