If you own or rent a house, the value of your belongings will easily accumulate. So, what if your home’s belongings, such as furniture, appliances, and clothes, were stolen or damaged?
The great news is that most tenants, owners, and condo insurance plans cover the contents of your house. This policy is often referred to as “contents insurance,” although it is generally referred to as “personal property coverage” in most insurance plans.
If your personal possessions are stolen or destroyed by a protected peril, such as a fire, contents insurance may help pay to replace or fix them. So, if someone crashes into your house and takes your laptop, or if your furniture and clothing are destroyed in a fire, contents insurance could help cover the loss.
It’s important to know your insurance and how much your insurance can pay for a protected claim so you can be better informed if you do need to file a claim. Continue reading to learn about how contents policies work, coverage limits, and other things to think about.
Replacement Cost vs Cash Value
When you buy a homeowners, tenants, or condo insurance plan, the insurer will usually let you choose between two forms of personal asset coverage to help protect your home’s contents: real cash value and replacement cost.
- Replacement expense compensation compensates you for the cost of replacing a defective item with one of equivalent form and quality.
- According to the Insurance Information Institute (III), actual cash value policy normally pays you the cash value of the goods you insured, but it often considers depreciation of the object.
Here’s an illustration of how these two types of coverage interact. Assume your 5-year-old television was robbed and you lodged an insurance claim. A contents insurance plan with real cash value coverage would only compensate you for a portion of the cost. In the meantime, a policy with replacement cost coverage will most likely provide you with enough coverage to buy a replacement of the same standard at today’s price.
Remember that if you want to choose replacement cost coverage from your home insurance broker, your policy premium will rise.
Taking Stock
So, how do you decide how much — and what kind — of coverage is best for you? Having a catalogue of your belongings is a good place to start. In addition to listing or photographs of your belongings, include information such as serial numbers on appliances, makes and models, and year of acquisition.
Add some official documents, such as bills and appraisals, to your home inventory as well. Documenting your possessions, from appliances to shoes, will help you gain a better understanding of what you have and how much it is worth. This can assist you in deciding how much personal property coverage you need, and it may also be helpful if you need to make an insurance claim.
Limits
You would have a coverage cap and a premium if you want replacement cost coverage or real cash value coverage. A cap is the most your insurance can pay on a covered claim. A limit is the sum you must pay out of pocket before your insurance can contribute to the payment of a covered claim. You will be able to choose your coverage cap depending on the value of your possessions, such as $50,000 in contents protection.
