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Personal Property Coverage, The Need to Document What You Own, Your Responsibility to Buy Adequate Coverage for the Contents of Your Home, and Home Based Businesses Besides all the differences discussed already that exist with home insurance policies that effect the dwelling coverage, there are major differences in the various policies you can buy that will also impact the type of coverage you receive for the contents of your home. Limit of Coverage One of the first differences is the total amount of insurance offered for the contents of your home. Basically, companies determine the amount of coverage for the contents part of your insurance protection based upon a percentage of the dwelling limit. Let’s assume a home is insured for $100,000. As additional coverage you may receive anywhere between 50% to 100% of the dwelling limit for the contents of your home. If you pull out your current policy, more than likely the typical percentage on it will be between 50% to 75% of the dwelling limit. With the value on the dwelling set at $100,000, the policy will provide therefore between $50,000 and $75,000 as additional coverage. Adequacy of Contents Limits Regardless of your contents limit set automatically by the insurance company, just because you see that limit on your policy does not mean after a total loss, for example, your company will simply send you a check for that amount. You will be required to submit an itemized inventory of what you have lost and what it will cost to replace. If your total does not equal your policy limit, you will not get your policy limit! I have clients call who have obtained quotes from other agents or companies. Sometimes a client calls and says not only did they find a lower rate, but also the company included more coverage for their contents. Part of my response is that the higher limit for contents does not make the other policy better or a better value. You will simply not receive the higher amount for contents if you can’t document you have the higher amount. Responsibility to Be Fully Covered for Contents Coverage See if you can you answer this quetion. How much will it cost replace all the contents in your home? Will your policy cover this amount in full? Regardless of the amount you automatically receive for the contents portion of your home insurance, it is your responsibility to determine if you have a total loss, by fire for example, if your policy contents limit will be adequate to replace the contents of your home. Most homeowners simply do not know what their total dollar amount of coverage should be. Most homeowners don’t even have adequate documentation kept off-site in for example, a safe-deposit box to help make an itemized inventory of their loss. If you have not already done so, you should walk around your house with a 35mm type camera and take lots of pictures of what you have inside all the rooms of your house. Get those pictures developed ASAP and stick them in a safe-deposit box. If you need to buy more insurance for the contents, it is usually not expensive. Special Limits of Liability A very important section to check in the homeowners policy is the section for special limits of liability. This section spells out maximum dollar limits that apply to certain types of property in your home, such as cash, jewelry, collectibles, silver, business property, computers, and other types of personal property. If you own $100,000 worth of jewelry, for example, and believe since your policy limit for personal property is $300,000, this limit may include your $100,000 worth of jewelry if it is stolen. This is probably not true. Unless you buy special coverage for jewelry, most policies only cover between $1,000 to $5,000 for theft to jewelry. After if you have reviewed the section in your policy that spells out the special limits of liability and you find you don’t have adequate coverage for certain types of property, you may be able to buy higher limits for them. Types of Perils or Losses Covered Named Perils Besides the limits of coverage, the typical home insurance policy will also include a section on what types of losses are covered. The typical home insurance policy provides what is called “Named Perils” Coverage on the contents. The policy lists the types of events that must occur, such as fire, theft, smoke damage, etc. for coverage to apply to your claim. The typical named perils include sixteen types of losses. If incur damage to the contents of your home, unless it was caused by one of the perils listed in your policy, you won’t be covered. Let me give you a simple example. A few months ago, I read a story about a homeowner in Orinda, CA that had some deers get inside the house and go berserk. I don’t know how much damage was caused to the contents of that home. However, I have never seen a Named Perils home insurance policy that includes on its list of sixteen perils damage caused by deers. “Open Perils or All Risk” Contents Coverage Less common, but a more comprehensive type of contents coverage is a policy that does not name the perils that must happen to the contents in order for coverage to apply. Years ago, you could actually find language in the policy that said “all risk” coverage applied to the contents. Those words have been changed to other terminology today. However, the intent is that if something happens to the contents of your house and no exclusion applies, you are covered for the loss. In the example above with the deers, damaged to the contents of the home caused by the deers would probably be covered. Not all companies offer contents coverage broader than named perils. My agency can obtain policies that do provide this option. Based upon the value of the contents of one’s home, the more comprehensive contents coverage may make sense for some homeowners. Claim Settlement Options for Contents Many companies today offer replacement cost coverage for the contents of your home. Some types of contents won’t qualify, such as antiques. How do you replace a one of a kind antique? Definitely not with a brand new item! However, even with replacement cost coverage for your contents, most companies will actually not pay you today’s replacement cost figures until you actually replace the items. You will normally receive your initial payment based upon a depreciated amount. The policy itself will clearly state that’s all you get paid unless you replace the items in question. After you have replaced the items, you submit bills showing this and you get paid the difference. There are some companies that offer an even better option. That option allows you to get paid for the full replacement value of the items without having to buy a single thing! Let’s assume you have a total loss to your contents of $500,000 at today’s replacement cost figures. Your policy limits will cover that amount. Most companies will take depreciation on that total based upon a variety of factors and your initial payment may only be $250,000. Once you replace everything, you get the additional $250,000. How about getting the $500,000 without having to replace a thing? You submit your inventory, it is approved, and you get your check for $500,000! My agency offers several policies with this option. From the above discussion, you should now know there are differences in not only what types of limits are offered, but what perils are covered and how you get paid on your claim. See if you can answer the following questions: 1)Do you have Named Perils or Open Perils Coverage for the contents coverage on your policy? 2)Do you have to replace the damaged items after a total loss to receive the replacment value? 3)Do you have replacement cost coverage included for the contents, regardless of the claim settlment options? Business in the Home and Contents Coverage Final note, I am finding more and more homeowners today who have a business in their home. If you are one of those, there are many limitations not only on the personal property coverage limits, but on liability and other insurance matters as well. If you run a business from your home, more than likely if you have not bought special insurance for your home based business, your business will not be adequately covered by your current homeowner’s policy. You may actually need to buy a special business insurance policy to properly cover a home based business. David Shaffer Insurance Services © 2000 |
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David Shaffer Mortgage and Insurance Services
