You may be surprised to find out how high the value of all your belongings inside your home or your rental place is. If you actually sit down and make a list, the value might run into tens of thousands of dollars. For some, this figure could easily rise beyond $100,000.
Given the amount of money involved, you would surely want to protect these valuable belongings from getting damaged or stolen. There could be plenty of ways in which an unfortunate event can take place and ruin your belongings in the process. Your house could get gutted by a fire, or maybe a windstorm damages certain sections of your house, or perhaps you are a victim of theft.
Perhaps, you are renting a house or an apartment and your landlord won’t pay a penny to reimburse the loss/damage of your belongings. The list of bad things that can happen is endless and the pain can be quite substantial. No one likes losing their expensive computer screen, high-definition television set, or valuables like jewelry.
Contents insurance can be the solution
Luckily, there is a solution to tackle this risk. It is called home contents insurance or personal property insurance.
It can help you replace your belongings which get stolen or damaged by an unforeseen or unfortunate event that is covered under the policy.
Commonly occurring events like fire and burglaries are included under a contents insurance policy.
Home contents insurance may involve a deductible that you have to pay before the insurance company pays anything. But, the deductible is small compared to the value of the item which you may have lost.
Home contents insurance will have a limit up to which it provides reimbursement. So, whatever lost belongings you plan to replace through insurance claims will be capped to the limit of the policy.
The higher the limit, the more premium you have to pay out every year.
Therefore, before you go shopping for contents insurance or personal property insurance, make a note of all the high-value items that you want to be covered and estimate what limit you ideally need on your insurance policy.
You want to make sure that you have enough coverage when disaster strikes. Taking a video of all your high-value items can also be a useful resource.
Some insurance companies will not cover certain high-value items in their typical policies. For such items, you may need to purchase add-ons.
If you do decide to add things like fine art or jewelry, the insurance company might ask for those items to be appraised in order to record their values and work out a policy premium.
Method of calculating the value of an item
You also have to carefully understand how the insurance company will calculate the value of your belongings when a claim is filed. In the insurance world, generally two methods are used.
The first is the Actual Cash Value, through which the reimbursement amount is calculated by subtracting depreciation (depending on how old your lost item is) from the initial value.
Then, there is the Replacement Cost method, where the actual value of the item is reimbursed without subtracting any depreciation.
There is also something known as guaranteed replacement or extended cost method which goes a fixed capped amount beyond your policy limit.
So, if your policy was for $50,000 and your company has the option of an extended cost method, then the company might cover reimbursements up to, say, $60,000 which is 20% higher than the policy limit of $50,000.
This method is useful if inflation has increased the cost of replacing an item or if you need some elbow room to properly replace your lost item.
Is home contents insurance expensive?
No, a home contents insurance policy is quite inexpensive considering the peace-of-mind that it provides to you.
Should a windstorm rampage through your neighborhood or a fire destroy all your belongings, you know that your insurance will have you covered.
If you are willing to insure a $30,000 car, then you surely will be comfortable insuring your cherished belongings whose value may surprisingly be more than the value of your car.
As pointed out above, your insurance premium will depend on how much coverage you choose.
If your list of belongings is long, and if there are a lot of high-value items, then your coverage requirement will be higher and you will pay a higher premium. If you opt for add-ons, then your premium will rise. So, the premium will vary from case to case.
But, no matter how much coverage and add-on features you opt for, the money spent will be worth it when you really have to submit a claim.
How to buy contents insurance?
Generally, personal property or home contents insurance is offered as a part of a renter’s, homeowner’s, or a condo insurance policy.
Most major insurance companies offer home contents insurance. Often times, the insurance policies mentioned above have protection for personal belongings. If not, then they can be added on.
You can visit the websites of popular insurance companies and check if a home contents insurance policy is offered in your zip code.
If it is, then you can fill out some basic information and get a quote or an estimate right away. It is always a good idea to look at multiple options and then select the best one.
When you shop around, make sure that the insurance company that you are looking at is reputed and financially strong.
Some other points to note
You should be aware that your insurance policy will not cover the belongings of your roommate, if you have one. The name of your roommate has to be on the insurance policy for him/her to get any benefit out of it. Insurance companies allow the name of another person to be added to the policy. The premium might change as a result of the addition.
Certain close family members are included in the contents insurance policy. Children and spouses are normally covered. Make sure you ask the insurance company about coverage extended to family members. The personal belongings of guests may be covered. You would have to inquire to confirm such coverage.
If you already have homeowner’s insurance, then the home contents insurance coverage is usually limited to about 50% to 70% of the insured home’s value.
In the case of renter’s insurance and condo insurance, the policyholders have more freedom on choosing the coverage amount.