Know Your Insurance Coverage

What kind of insurance coverage do you have, Replacement Cost or Actual Cash Value? It’s important to know your coverage. Before you determine that, let’s briefly discuss a household inventory, which is valuable when making an insurance claim.

If you suffer a loss, whether it’s a burglary, fire, or other cause, an insurance company will need a detailed list of the household contents lost. It’s difficult enough to function after a disaster, and even more so if you have to come up information about specific items damaged or missing. You’ll need detailed information in order for the insurance company to pay your claim.

Making an inventory isn’t complicated or terribly time-consuming. Go through your home, room by room, creating a document that lists: Item — Original Cost — Purchase Date — Serial/I.D. Number — Current Value. Taking photos is a good idea, too. For each room, in addition to that room’s specific items, consider the draperies, lamps, clocks, area rugs, fine arts, collectibles, musical instruments.

Keep an extra copy of your inventory in a place other than in your house, perhaps at a relative’s home, in the event your home is totally destroyed.

If it becomes necessary to make a claim, you’ll want to know what to expect from your insurance company. It’s important to know what type of insurance you have for your household contents, Replacement Cost or Actual Cash Value.

Replacement Cost: The insurance company will provide payment for the actual cost of purchasing a new, identical or similar item. The lost or damaged item will be replaced.

Exception: Most insurance companies have a specific item limit, such as jewelry, between $1,000 and $3,000. They will pay up to the limit and no more. If you have valuable items such as jewelry, camera or musical instrument, consider getting a rider on your policy to cover these special items.

You pay higher insurance premium for Replacement Cost, but you’ll be given the money to replace the item at their value today.

Actual Cash Value: Sometimes called “Fair Market Value,” this method takes depreciation into consideration. The amount covered will be based on the replacement cost less depreciation.

You pay a lower premium for Actual Cash Value, but may have to pay more out-of-pocket costs to replace lost items.

Be aware of which type of coverage you have: Replacement Cost or Actual Cash Value. Knowing this information will save time and confusion when you need to know what you can expect from your insurance company.

There are several on-line resources for taking a home inventory. Search for “household inventory.” The internet is also a good place to shop for an insurance company.