Buying Insurance

Lesson 3: Homeowners and Renters Insurance

Contents

The contents portion of a homeowners insurance policy covers things in the house: furniture, clothing, tableware, etc. It will also cover things like garden tractors and tools if in an outbuilding destroyed in the same occurrence. Typically, the dollar amount of the contents insurance is a percentage, usually 50% to 60%, of the value of the dwelling. You will want to get the replacement cost option on the contents as well. The reason for this is that partial claims are usually settled on an actual cash value (insurance jargon:ACV) basis. This means that a certain amount will be deducted from the payment for depreciation. For example, the water heater in your home springs a leak and ruins the carpet in the family room. The carpet store gives you a price of $600 to replace the carpet with like kind and quality. But the insurance claims representative(insurance jargon:adjustor)points out that your carpet was five years old and showed considerable wear. Therefore the company will deduct 25% for depreciation. So subtracting the policy deductible of $250 and 25% or $150 for depreciation, the insurance company pays you $200. Be advised that this is fair. The insurance company did not agree to improve or better your situation. It agreed to pay for your loss. You lost a five year old carpet. The way to a happier settlement is to secure the replacement cost option on the contents as well as the dwelling. The deductible will apply in any case, but in the example above the replacement cost option would have put an additional $150 in your pocket. Hungelmann provides a means of estimating replacement cost of belongings pp. 77 & 78.

  1  2  3  4  5  6