Your homeowner’s insurance policy is designed to cover the costs of rebuilding or repairing your home should a disaster strike. But what about your personal belongings? If your jewelry, fine art, electronics, medical devices, musical instruments or antiques get stolen or destroyed in a fire or flood, how much will your insurance company pay to replace them?
Chances are, much less than you think.
According to the Insurance Information Institute, personal property coverage for standard homeowners' insurance policies generally ranges between 50 to 70 percent of the coverage on the structure of policyholders' homes. And most policies limit coverage on jewelry to $1,500.
Fortunately, there are ways that you can increase coverage for items that would be very expensive to replace. Naturally, you’ll pay more for this increased coverage, so it’s worth taking a look at your possessions to determine which you could live without if they were damaged or stolen; those items you’re willing to accept partial reimbursements for; and those whose full replacement value you’d want to insure.
Document your valuables
The first step in this process is to create a printed or online catalog of your most valuable possessions. Take photos of items you’d most want to replace and include a description of when and where you bought them and how much you paid. Include the receipt if you can find it.
Your finished catalog should give you a sense of your valuables’ total replacement cost and help you figure out which items you want additional coverage for.
Review your policy
Before you contact your homeowner’s insurance company to increase coverage, review your current policy. Somewhere in the fine print there should be language that describes your personal property coverage. You may find that coverage for items lost due to theft is less than coverage for possessions destroyed in a fire or flood. And you may not be able to make claims for items you lose on own your or are broken by accident.
Fortunately, you are often able to change both coverage levels and conditions—at a cost.
Covering collections
Let’s say the most valuable thing you own is your collection of vintage electric guitars. You may be able to add a rider (also called an endorsement) to your insurance policy that increases coverage for your collection without requiring you to replace your current policy.
You can also use riders to adjust coverage conditions, such as equalizing coverage for items that are stolen versus damaged or destroyed by natural disasters or adding coverage for items broken by accident.
Protecting the replacement value
When you file a claim for a lost or damaged item, you won’t necessarily be reimbursed what you paid for it. That’s because many payouts are often based on the item’s actual cash value (ACV). ACV payouts reflect depreciation. The longer you own the item, the lower your reimbursement will be. The best way to protect against depreciation is to purchase a replacement cost value (RCV) policy. RCV policies ensure that payouts will equal the item’s original cost. Of course, these policies are more expensive, but you may able to include RCV coverage in riders so they may only apply to certain items (like that guitar collection) without covering all of your possessions.
Insuring your most valuable items
If you have some extremely valuable items, like fine jewelry, artwork or coin collections, you’ll probably want to insure them separately. This is where “floaters’ policies” come in.
Floaters provide the highest and most flexible level of coverage for individual items. The catch is that you’ll need a separate floater for each item you want to insure, and you’ll have to have each item appraised by a qualified professional before you can purchase a floater.
This material has been provided for general informational purposes only. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult an insurance advisor or your financial advisor for specific insurance-related assistance.
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This article was authored by Joelle Spear and Jeffrey Briskin. Joelle is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at 508.598.1082 or jspear@canbyfinancial.com. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
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