This article is part one in a series explaining the different coverages homeowners insurance includes.
If someone was to take your home, turn it upside down and shake it, what would fall out?
That’s the question InsuraMatch agent Seth Miller poses to our customers curious about what exactly the “contents coverage” listed under their homeowners or renters insurance means.
“Contents coverage is the part of your homeowners insurance that will help replace your personal property should you face a covered loss or damage,” he tells us. “Everything from clothing to furniture to appliances would need to be replaced if you experienced a total loss, so you want to make sure you have enough contents coverage for that.”
Homeowners insurance, which also typically includes dwelling, liability and ALE coverage, provides important protection for homeowners for their personal belongings. Not all homeowners policies are created equal, however. Understanding what your policy covers is essential to keeping your home and belongings protected.
Types of Coverage
There are two primary types of coverage for your belongings provided by homeowners or renters insurance: actual cash value or replacement cost. It is important to understand the differences between them so you don’t run into any surprises if you need to file a claim.
Actual cash value coverage provides reimbursement for your belongings with a deduction for deprecation. Should an item be damaged, this coverage would provide reimbursement for its replacement for the value of the item at that time, not what it would cost to replace the item. For example, if your old laptop was damaged in a home fire, you would receive the amount the laptop was worth at the time of loss. This likely would not be the same as the amount it would cost to buy a new version of the laptop.
Luckily, most policies provide replacement cost. This gives reimbursement to replace the damage item with a similar item of like kind and quality. That TV you’ve had for 2 years? You’d get reimbursement for a comparable one.
In rare instances, your homeowners or renters insurer could provide a replacement in the form of the actual item. Talk to your agent to understand what your insurer provides.
Your belongings are protected against damage and loss, but the cause of damage and loss is important. Certain types of damage, like flooding, are not included in homeowners or renters insurance, so be sure to speak with your insurance agent to understand what your policy will and will not cover. You may need supplemental coverage to address all of your risk.
You’ll want to be thoughtful about your deductible when choosing a homeowners insurance policy. If the cost to replace your personal property after a loss or damage is less than your deductible, then it may not make sense to file a claim for those items. Be careful to choose a deductible that works for your budget.
Contents coverage helps cover your personal property, but not necessarily all your personal property. Certain items may have a cap on coverage, for example expensive items like jewelry, collectibles and antiques. Since these items generally have higher price tags due to their unique nature, you’ll want to examine what coverage is offered under a standard homeowners policy with your insurance agent. If you have items that aren’t included under your homeowners coverage, you can work with your insurance to add supplemental coverage to your policy.
Your personal property may also be covered when it is outside your home. This is great for the items you keep in your car or what you take with you when you are traveling or what you must keep in storage. There is typically a coverage cap, say 10% of your limits, on items away from the home. Your agent can help you figure out if your homeowners insurance will cover belongings away from the home and how much coverage it will provide for those items.
Taking an Inventory
If contents coverage is supposed to cover your stuff, then you need to know how much stuff you have! Knowing what is in your home will help ensure you’ve got the right limits in place to protect everything in the event of a loss. That’s where a home inventory comes in.
“You should take inventory of everything you have,” Seth explains. “Technology has made this much easier, you can use the camera on your smartphone to document everything you own. There are even apps you can use to take an inventory. The important thing is that your inventory list is stored in a safe place outside of your home or in the cloud. This way, no matter what happens, you’ll always have access to it if you need to file a claim.”
By taking note of what you have, you can work with your insurance agent to make sure your homeowners insurance will cover everything. It will also bring items that may be excluded from your policy to your attention, so you can review how to cover those items with your agent.
As Seth says, if you have a smartphone or digital camera, the inventory process is pretty easy. Here's our step by step guide on how to take a homeowners insurance inventory of your belongings (handy to have in case you need to file a homeowners insurance or renters insurance claim!):
- Grab your phone or camera and make sure you have enough space to record a video. Alternatively, you can download an inventory app, like this one from the Insurance Information Institute or one off this list from the balance.
- Go through your home room by room, documenting your personal property in each room. Don’t forget to go through items in closets, drawers and the items in your garage, basement and attic.
- If you have the information available, record each item’s value at the time of purchase, as well as copies of any receipts or serial numbers, if possible.
- Once you’ve finished your inventory, save it in a secure location outside your home, like an account in the Cloud. Saving it somewhere secure and away from your home will ensure that it does not get lost or damaged if something happens to your home.