One of the most important things you as a homeowner can do to protect your investment is to insure your home and property. Contents insurance is a vital component of your insurance protection, yet it is one of the least understood parts of a comprehensive home insurance plan. Your insurance agent can help you in determining which contents insurance coverage is right for your family’s needs, but some general guidelines can also be helpful in your decision-making process.
General home insurance policies cover the cost of rebuilding your home in case of a fire, flood, or other destructive event. Contents insurance, as the name suggests, covers the expense of replacing the contents of your home in these same events. These policies usually cover items lost to theft as well, allowing you to replace your destroyed or stolen property without serious financial repercussions. Contents insurance policies can be divided into two general types: actual cash value and replacement value.
Actual cash value policies offer you the current value of your lost items at the time of the claim. Since property usually depreciates, or decreases in value, over time, this type of contents insurance is often less expensive, but offers a lower payment for your lost items. For instance, if you lose a recently purchased stereo system, it’s likely your insurance company will give you a payment equivalent to its used value, rather than the amount you paid for it new. In some cases this can represent a significant financial burden, especially if your property will be difficult to replace with equivalently used items.
Replacement value policies pay you the amount it would cost to purchase your items at the time of loss, allowing you to immediately buy replacements. This can save you time and worry during a stressful situation. However, replacement value coverage is more expensive and requires that you keep your insurance agent up to date on major purchases.
Some types of items have limits on coverage; any losses over this limit will not be covered. Such items include jewelry, cash, rugs, computers, firearms, rugs, and silverware, among others. These items can be covered at full value by adding an endorsement to your policy or by purchasing optional supplemental coverage. However, most insurance companies also limit contents insurance coverage to a certain percentage of the structure limit, the amount the insurance company is required to pay to rebuild your home in the case of a total loss. Your insurance agent can give you more details on exactly how much and what kinds of things are covered under your contents insurance policy, and how best to protect your home and belongings.
