Fires on Maui. Flooding in the Southeast. Natural disasters have made headlines lately, providing a timely reminder about the need to plan homeowner insurance needs and review them from time to time.
This includes making sure you have adequate coverage, understand the claims process and safeguard key documents. It's also wise to compile a list or inventory of your furnishings and other belongings.
Checking your insurance policy
A key first step is to make sure you have adequate coverage. One key factor is to distinguish between whether you have an actual cash value or replacement-cost policy.
With actual cash value, your insurance company won’t fully reimburse you for a new item at prevailing prices. The rationale is that your belonging has decreased in value over the years as you used it and as it aged. Replacement-cost policies will reimburse you in full for a new appliance or other item at today’s higher prices.
If a laundry-room fire destroys your washing machine, for example, a replacement-cost policy would reimburse you for a new machine, at today’s prices. You would receive only a portion of the cost of a new appliance with an actual cash value policy, since your older machine has depreciated owing to use and age,
Alternatively, you might want to opt for an extended replacement-cost policy, especially as it pertains to your home. With these, "Your insurer will pay a certain percentage over the limit to rebuild your home — 20 percent or more, depending on the insurer," wrote the Insurance Information Institute in a report. "If building costs go up unexpectedly, you will have extra funds to cover the bill.”
Most policies provide "adequate coverage" because they include inflation clauses to keep up with increases in local building costs, the institute added. But you should verify what type of coverage you have. It's also smart to inform your insurer when you have added rooms or made other substantial upgrades to your dwelling.
Taking inventory or your possessions
Renters wouldn’t need to worry about structural damage, but they, too, should be concerned about the contents of a home. Both renters and homeowners might be surprised by how much stuff they own. To track and document all of it, insurance experts used to advise walking around your house with a pad of paper and camera in hand. Then videocameras became handy for doing this. Now you can do much of the work by snapping photos with a cellphone and listing product details there or on various apps.
If possible, describe each item by manufacturer, model and serial number, State Farm suggests. Include the price and date of purchase, if known. Photos will help. “Pay special attention to your most valuable possessions, such as antiques, art, jewelry, collectibles and electronic equipment,” State Farm suggests. Don't forget about your wardrobe, which could be substantial.