Wednesday, December 9, 2009

I don't have that much stuff, do I?

Homeowners insurance not only covers your home, but also covers your belongings. Some people feel that they don't have a lot of personal property and therefore don't need this coverage.

Think of it this way. It's not how much stuff you have at this point, but how much will it cost to replace. If you add up the cost of everything you have right now, clothes, appliances, furniture, electronics, Cd's, DVDs, books, TVs, tool's, etc., you will find in pretty short order that the cost to replace that stuff really add's up. You may have only paid $50.00 five years ago for that table, but if you had to buy the same table today would it still cost only $50.00? It will probably cost a little more for the same table.

Also, keep in mind that most carrier's have sub limits for certain types of personal property. A carrier may have a $5,000 limit on electronics for example. This is to keep a few items from taking all of your coverage. For example, let say you have $170,000 for your personal property limit. You have a flat screen TV, 2 computers, 2 digital cameras, and a printer. Your carrier has a sub limit of $5,000 on your personal property for electronics. If you had to buy the TV, the printer, the cameras and the computers, let say you would spend about $11,000. We'll, your carrier will only pay $5,000 for your electronics. The remaining, $165,000 would go to replace clothing, your fridge, your oven, jewelry, the couch, the bed, the blankets, etc.

Let's look at how the insurance carrier calculates this coverage since they can't know what you already have and even if they could get this info, it would be a real pain to list everything you own. (check out for a free home inventory program online). What they do is take a percentage of your dwelling coverage and use that as your personal property coverage. For example, say your home is insured for $200,000, your personal property coverage would be about $100,000. Most carriers figure 50% of the dwelling coverage as a base although some will go up to 75%. If you have a special, high cost item like jewelry, a piano, wine collection, or a valuable painting, you can add a rider to cover just that item.

Also consider that the carrier is trying to also cover what you may buy in the future. Most homeowners policies renew once a year. So everything you buy for that year would also need to be covered. You also have 2 primary settlement options when it comes to personal property. Actual Cash Value and Replacement Cost. ACV usually cost's less because the carrier is going to look at each of your items and depreciate them according to their depreciation schedule. In short, you will get less for the TV you bought last year. Replacement Cost means that the carrier will pay to replace the TV with like kind and quality up to the policies limits or applicable sub limit.

You can also choose to self insure. Just make sure that you will always have the money in an accessible form. Put $170,000 or whatever you think your stuff is worth in a savings account and don't touch it. One day, you may need it. The rest of us will just get insurance and keep a $1,000 in the account to cover the deductable.