Homeowners insurance is meant to help you recover from a major covered peril. Fire or storm damage can cause thousands of dollars in damage to the exterior and interior of your home.
We don’t always think about all of the items that make a house a home. The furniture, mementos, and even things like clothing and shoes, are such a part of our everyday lives that we don’t zero in on how daunting – and expensive – it would be to have to replace everything.
This is where developing a home inventory serves a critical function. In order for your homeowners insurance to replace your belongings, it has to know what your belongings consist of, in every room that was affected.
What type of sofa did you have? Was it leather or upholstery? Did it have foam-filled or down cushions? What length was it? Where and when did you buy it, and how much did you pay?
Unless it was a recent purchase, most people won’t have a receipt close at hand showing all of this, but this is all important information when your insurance company is trying to estimate your claim amount.
And that’s all just for a single piece of furniture. Now try to answer all of those questions for every object in your living room, kitchen, and bedrooms.
The need for a home inventory is readily apparent, especially if you expect your insurance claim to restore your home to the way it was before you experienced a loss.
Many people make the mistake of assuming their belongings just don’t amount to much. That’s because most of us acquire things over time, which blunts our perception of how much it would cost to replace everything all at once.
The fact of the matter is, you probably have more invested in your personal property items than you realize. Making a home inventory will help show you how much coverage you should have.
Ensure your home is protected
Actual cash value versus replacement cost
When you apply for homeowners insurance, one of the questions you are likely to be asked is to choose between actual cash value or replacement cost. These are levels of coverage that will significantly impact the calculation of how much you will be paid for a claim.
Actual cash value is coverage for items at their depreciated cost. If you have actual cash value coverage, your claim will be calculated based on how much the depreciated cost of your items, and not what it costs to purchase the item new.
Upholstered items depreciate quickly, for example, with a general estimate of losing 20% the first year, and five percent or more each additional year. That means a couch you paid $1,000 for will be worth $800 the first year after purchase, if it’s in perfect condition.
Replacement cost coverage is designed to cover your belongings at the cost of buying things new. If a fire destroys that couch you paid $1,000 for and it now costs $1,200 at retail, your claim covers the cost to replace it new.
Over the past few years, prices of some products have increased significantly. Knowing how much coverage you have and whether your belongings are covered at replacement cost or actual cost value is an important part of understanding what your homeowners insurance would cover if you experience a loss.
Documenting your property
It can be incredibly daunting to think about developing a full home inventory. Who wants to spend the weekend counting how many kitchen utensils they own, or documenting how many throw pillows are in the house?
Technology is making home inventories far easier to develop, maintain, and update. Here are some examples of how recent advances in technology can help you build, store, and maintain a home inventory:
- Apps – There are now dozens of apps that can help you to inventory the contents of your home quickly and accurately. The National Association of Insurance Commissioners (NAIC) offers one that allows consumers to snap photos and scan barcodes, and group belongings by rooms. Sortly, Itemtopia, and many others are available, some for free and some for a charge.
- Electronic records – The ability to capture and store information electronically is enormously helpful for home inventory control. One of the downsides of developing a physical list of home belongings is that if someone did actually carve out the time to write out a list, it was challenging to keep it updated and accurate. Electronic records, such as digital delivery of receipts and even the ability to take pictures using a cell phone, have made it far easier and a lot faster to keep home inventory lists up to date.
- Cloud storage – A home inventory needs to be accessible after a disaster strikes. To protect your inventory list, cloud storage replaces the need to keep such a list off-site. (Old advice recommended storing such a list in a bank safe deposit box; one can imagine how infrequently those lists were updated!)
Before selecting an app, consider how you will use it. Do you have a lot of belongings that are hard to categorize? Then you will probably want an app with customizable fields. Are you comfortable using technology, or would you prefer something that is very simple? Are you currently furnishing a new home or redecorating? Then selecting an app with the ability to quickly capture, upload, and categorize receipts makes sense.
Research apps and read reviews. The best tool to pick is one that is intuitive to you and that you will actually use, because keeping your inventory updated and accurate is important.
“Minus your deductible…”
Because homeowners claims can vary significantly depending on the size of the loss and the amount of damage, it is important to talk about the role of your homeowners insurance deductible.
As you are assessing the damage you’ve experienced from a covered peril, remember that your deductible is the amount you are responsible for covering to replace your belongings. If your home has an estimated $5,000 in damage and your deductible is $2,000, your claim payout will be $3,000.
At that level, it might not be worth it to make a claim, especially when considering the potential for increased premiums.
Policy limits
Your homeowners insurance policy likely also has established limits for different categories of items. For example, off-the-shelf framed prints from the décor section of Home Depot will likely be covered under your basic policy, but original artwork purchased at an art gallery probably will not be covered.
If you have high-value or hard-to-replace items like jewelry, artwork, specialty electronics, antiques, or collectibles, you need to insure those with valuable personal property riders. And, to help with your home inventory, any items you have that would be covered under a separate rider will frequently need to be itemized.
There is a lot that goes into developing a home inventory, from gathering the information to capturing, categorizing, and safely storing it.
If you want to know more about how to make a home inventory, or if you have questions about deductibles, policy limits, or actual cash value versus replacement cost, contact the experts at Rate Insurance. With access to a range of homeowners insurance companies, they can help to find answers to these questions and get you the coverage you need at the right price for your budget.
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All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Rate Insurance does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Rate Insurance. Rate Insurance, its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
