First Person: Determining Proper Insurance Coverage Levels

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It's difficult to know how much content coverage to carry upon the possessions within our home. There is that balance between having enough coverage to secure our personal possessions should a fire, flood, or theft claim them, but not so much coverage that we're overpaying unnecessarily. This can leave us doing a high-wire act trying to balance coverage versus cost. There are certain steps we take though to make determining our coverage limits easier.

Conducting a Thorough Home Inventory

At first glance, as I look around our condo, it doesn't seem like we have many items of value to replace should an accident claim them. However, when I start to consider how much it would cost to buy replacements for all our possessions -- clothing, toiletries, kitchen appliances and utensils, furniture, bedding, electronics, books, and more -- the costs can quickly start to add up.

It's not every day we have to go out and buy all new dishware, utensils, towels, pots, pans, etc., and having to do so all at once could result in some shocking cost totals. But it's difficult to really account for every little thing in our home, and it can be even more difficult to do so from memory after a fire consumes these possessions or a flood carries them away.

This is why conducting a thorough home inventory before an accident can help us through a difficult time after such an event occurs. The quickest and easiest way that I've found to do this is by going room by room with a video camera, narrating the list of possessions and values as I go and placing the resulting video in a secure place such as a safety deposit box. A handwritten inventory or photos could also work but might not be as easy or efficient as a video recording.

Considering Current Value vs. Replacement Value

It can be a shock to the system after a fire or flood to realize that our insurance company only pays for what they consider our possessions to be worth at the time of loss as opposed to what it would cost to replace them. Getting $100 for our five-year-old sofa, $50 for our four-year-old television, and $100 for our mattress set could only put a dent in the thousands of dollars it could cost to go out and buy such items brand new in a retail setting. Therefore, it's important for us to know how our insurance company will appraise our possessions and reimburse us should such a situation arise.

Content Coverage Limits

There can be all kinds of limits that affect how much we're able to recover when filing an insurance claim on our dwelling contents. Such limits could make it difficult for us to recover the full value of our possessions should an accident occur. There can be limits on things like coin and stamp collections, cash-on-hand, firearms, computers, and furs, just to name a few. Being self-employed and working from my home means that I keep multiple laptops on hand. Finding out that our insurance only covers computer loss up to $500 could have me losing money should these items be lost or destroyed. Therefore, I've taken time to review such limits found in our insurance policy coverage and terms booklet.

Knowing Our Property

Another factor to consider when determining proper coverage amounts for our dwelling's contents is the property and location of the property itself. Things like the home's security system, location, and area crime rates can play significant roles in our home's safety. Whether there is a neighborhood watch, whether it's a single-family home, a condominium or apartment, the age of the dwelling, and whether our home is near a river or steam or it's in a flood plain -- as well as the flood history of the area -- can all factor in to how safe our belongings are in our home and how much it could cost to insure them.

Steps for Ensuring Proper Coverage

So if here is a quick, step-by-step guide as to as to how I proceed when it comes to ensuring proper coverage on our dwelling's contents:

  • Inventory - Conduct a thorough video inventory of all your possessions and their associated values in an effort to get a better idea of what our dwelling contents are worth as well as develop a visual record of these items.
  • Collectibles/Antiques/Other High Value Items - Make special note of especially high value items that could inflate our coverage needs.
  • Review and Understand Coverage Terms and Limits - Understanding how our insurance coverage will be applied can be critical to determining what sorts of coverage we need and in what amounts.
  • Consider Property Usage and Placement - Is our property in a high crime area? Is our home prone to flooding or fire? Do we use our home for business purposes? Are we storing high-value items in your home? These are some of the questions I consider when reviewing property usage and placement.
  • Determine Cost of Coverage - Knowing how our coverage is determined and the pricing for that coverage means that we can find the proper balance between having enough coverage to insure loss but not pay for more than we need for this coverage, getting us the best bang for our buck
  • Review and Adjust Coverage and Rates over Time - Our coverage needs can change over time, meaning it's important for our insurance policy to keep pace. A great time to review and adjust our coverage limits is when we move or if we make certain big-ticket purchases.

These steps help us move forward with balancing the proper level of insurance coverage necessary to keep our possessions safe without overpaying for this coverage in the process.

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The author is not a licensed financial or insurance professional. The information provided in this article is for informational purposes only and does not constitute legal, financial or insurance advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.

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