Home Contents Insurance

For most people, their home and the possessions they have inside are among their biggest assets. Whether it be furniture, jewelry, artwork, or priceless family keepsakes, we all have something that is valuable to us, and things we'd like to protect against loss.

How does home contents insurance work?
Just like any other form of insurance, home contents insurance is designed to protect against financial loss. It is important to differentiate between home contents insurance and home insurance, as home contents insurance insures only the property inside the home whereas home insurance protects the home itself.

Protection, though, is a term that needs to be better defined. Protection in the case of home contents insurance means protection against financial loss. While any number of people own any number of valuables that are valuable to themselves, they are not as valuable to others. That is, your mothers diamond engagement ring may be worth millions of dollars to you, but in reality it may have only a few thousand dollars worth of stones and metals. To the insurance company, the sentimental value does not exist. Instead, insurance companies work on a “replacement value.”

Determining this replacement value can be difficult. Most insurers will allow you to attach a value to a lot of items. For example, for your silverware, you might attach a value of $1000 as a whole, rather than $5 for each spoon or fork. Some insurance companies allow group item insurance up to large dollar amounts. Insuring 5 big screen TVs as a lot under “electronics” might be disallowed since each has a high replacement value.

After getting each piece or item written down, its important to document the physical ownership of the product. Some common ways to do so are with a camera or video recorder. For small and valuable items, take pictures to demonstrate the item is in your possession and is in the same condition that you have declared. For whole rooms (furniture, artwork, etc), a sweep of each room with a video camera and an explanation of items will help prove ownership should you ever make a claim. Obviously, it is critically important to store these photos or videos in a place that would not get damaged if your house were to get damaged. A safety deposit box at a bank is a naturally fitting place.

Insuring Against Different Risks
There are a number of risks against which you can insure your items. Some of these include, fire, theft, and natural disasters.

Fire insurance is straightforward and is a very common risk that is mentioned in a policy. Theft insurance is usually up to the discretion of the homeowner or renter. Depending on the value of your property and where you live, theft insurance may or may not be necessary. Natural disaster insurance is inexpensive, and protects you against extreme, but never impossible, losses. Keep in mind that natural disaster insurance rarely covers flooding, but will cover rain damage. Speak to your insurance agent about obtaining flood insurance from your agent, or from FEMA.

Protecting Against Gaps
Few people stay on top of their insurance needs and while most never have to make a claim, many lose thousands of dollars after they discover their insurance was either insufficient, or did not cover the specific damages endured at the time of loss.

You should always try to keep home contents insurance and home insurance with the same provider, since it will help mitigate the chance that two contracts leave a gap in coverage. Two policies at two different companies, for example, might create a scenario in which your home is protected from fire while the contents or not, or vice versa.

It is also critically important to keep up with the changing prices of your valuables from year to year. Did you know that silver prices are up 500% in 10 years, and your silverware collection is likely five times more valuable than it was ten years ago? Or how about that your artwork's replacement value has risen by 50%? Relying on old data and numbers and failing to revise estimates each year leaves you with the risk that your payout may not cover everything you thought it would.

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