Home and Contents Insurance
December 15, 2016
Home and Contents Insurance
Myth: Belongings are Replaced at Full Cost
Homeowners shouldn’t make the mistake of assuming their belongings are replaced based on the full purchase price. Most items depreciate over time. Very few investments you make in your home gain value over the years. These items tend to be antiques, quality jewelry, and some designer items. Otherwise, most everything you own is worth less now than it was when you purchased it. If you assume your home and contents insurance is going to replace these items for what you paid for them, you’re going to receive a shock.
To cover the cost of depreciation in terms of your personal belongings, you can add an addendum to your home and contents insurance policy. It’s a refund clause. If you have original receipts for each item you replace following theft or disaster, you can submit the receipt to the insurance company along with the receipt from the original item you owned and the insurance company pays the difference to you. For example, if you paid $2,500 for a television 5 years ago, the insurance company gave you $750 as a depreciated cost, and you paid $1,500 to replace the television, the insurance company will refund you the additional $750 if you can provide both receipts.
Myth: All Final Amounts are Final
If you’re unhappy with the amount an insurance appraiser provides you with following a claim, you can fight it. Insurance appraisers do make mistakes, they make decisions without some of the specific facts, and they base their information on what they know. If you feel the amount they come up with when you file a home and contents insurance claim is unrealistic, you can ask them to readjust. Contrary to popular belief, your insurance company wants to work with you to ensure you are taken care of.
Myth: Cover Your Home and Contents Using Market Value
If you built your home following the collapse of the economy and the real estate market in 2008, chances are good you paid a lot less for your home than you might today. If you chose your home and contents insurance policy based on the market value of your home back then, you might be grossly underinsured anytime the market rebounds. Market value is not a wise choice when it comes to valuing your home and choosing home and contents insurance. The cost of building a home changes all the time, and the real estate market is rather fickle.
The value of your home and contents insurance policy is best based on the cost of replacing a home. Let’s say you have a large family and require a home with no fewer than four bedrooms. You bought your house as a foreclosure and paid significantly less than anyone else for the same home brand-new. You don’t want to make the mistake of assuming you can replace your home for what you paid for it when you choose the coverage in your home and contents insurance policy. If you paid $300,000 for the house as a foreclosure, but the other homes the same size with the same number of bedrooms, bathrooms, upgrades, and same size property in your neighborhood all sell for over $500,000, it’s unrealistic to assume you can rebuild or buy a home of similar size and features for $300,000.
Most people know very little about the complex inner workings of the insurance world. There are riders, policies, coverage limits, and factors no one considers. Homeowners live with the belief their home is covered, their belongings will be replaced, and they’ll be saddened and then mildly inconvenienced finding a new home following a disaster. The truth is believing these myths can have a negative impact on your financial future. Know the value of your home, the worth of your personal belongings, and what your policy covers.
The only way to be sure you’ll come out ahead following a disaster is to stay on top of your home’s value and your personal property with each new purchase. Your financial future depends heavily on educating yourself about the value of your belongings.