Home Insurance: Calculating Replacement Cost

Home insurance is the most important protection you can have against total loss of your biggest investment. Your home insurance policy will be the only avenue you have to replace your personal belongings in the case of fire or damage which could result in losing everything. To be able to collect on a contents claim against your home insurance policy you have to take stock of your possessions. This is important for two reasons: You need to ensure your coverage is adequate and you also need to have an inventory of your material possessions. Too often, after a loss, you're faced with listing all of your possessions after the fact, which could result in missing items or details. This could mean that you are responsible for replacing any missed items or pay for upgraded items yourself.

Take Inventory Now!

In order to ascertain exactly how much home insurance coverage you need, or make sure that any missing or damaged items are replaced in the event of an insurance claim, you have to have the facts. Having a current and accurate inventory is vital. To prepare an inventory you should take the following steps:

1. Take a picture of each item.

2. Record the make, model, serial number and date of purchase of each item.

3. For larger items keep the receipts with the picture(s) and information collected in 1 and 2.

4. If you have access to a video camera you can make a recording of each room in your home.

5. Get appraisals of expensive or unique items like jewelery, art and antiques.

6. Keep this inventory updated annually, and store it away from your home.

Consider an Appraisal

Resisting the temptation to over-insure your possessions is crucial, as this means you'll pay inflated premiums every year for coverage you will likely never have the chance to utilize. If you're unsure of the value of your possessions, or want an objective opinion on a particular item, consider having it appraised. If you submit the appraisal to your insurance company you'll be able to ensure that your item is properly protected. This is especially helpful if you feel that the value assigned to a specific item is too high or too low. For example, older items, such as antiques or classic cars can be found in many different conditions, which dictates the value. An appraiser will be able to properly evaluate the item in question, and set you and your insurer at ease.

Check Your Insurance Coverage

Once you have an inventory of your belongings and a good idea of the total value of your possessions, you should then check your insurance policy to ensure that the coverage you have is adequate enough to replace these items. Remember that if you have a policy that values your belongings at actual cost - meaning the original value minus depreciation - then your insurance payout would be lower than a policy that offers a replacement cost feature. With an actual cost policy, the replacement value of your belongings will decrease each year, except for antiques or other items that appreciate with age.

Particularly valuable items like jewelery, bikes, electronic or musical equipment, may not be covered under regular home insurance policies. It is vital that you ensure that your policy covers these specialty items fully. Most policies limit coverage of these types of items to $5,000, so you may need to add additional coverage to your policy to make up the rest of the amount. Shopping around and obtaining several home insurance quotes will allow you to look for providers who offer higher coverage amounts for your specialty items without adding premiums.

Reducing your coverage may seem like a good way to save money on your home insurance premiums, but if your property isn't covered, the short term savings could cost you. Choosing cheap home insurance can leave you high and dry when you're most in need. Take the appropriate actions to ensure that you know exactly how much insurance coverage you need, and make sure you have it - it will mean one less thing to worry about should you need to make a claim.