If you have valuables in your house, home contents insurance is something that you should consider. This type of insurance protects the contents of your home against being damaged, lost and sometimes stolen. The insurance is aimed at protecting all of your belongings inside your home. It is often sold along with homeowners insurance (which protects the actual structure of your home), but it can also be purchased as a stand-alone policy.
How Does Home Contents Insurance Work?
It insures the value of replacing the items in your home. While many items like pictures an heirlooms unfortunately have little cash value, but items like clothing, furniture, appliances, televisions and other electronics do. The insurance usually provides coverage for a specific dollar value, for example you may purchase insurance that might cover $25,000 worth of items in your home.
If you are trying insure a fair amount of items, it may be worthwhile to create an itemized list of all of your belongings. Some people also create a video of the inside of their home as an easy way of creating an inventory. Obviously, when creating these lists or videos, be sure you keep them in a secure place away from your home or in a fireproof safe.
What You Need to Know about Home Contents Insurance
Once you've determined the amount that you want to insure for, you need to be careful about several things.
Cash or Replacement Value. This is the single most important part of home contents insurance. You need to understand the difference between cash value and replacement value since they are very different and your policy will have one or the other. Cash value insurance covers the current value of the property, whereas replacement insurance covers the cost to replace your property.
For example, assume you bought a washer/dryer 5 years ago for $1,000 brand new. Today, it is no longer worth what you paid for it. Assume a wash/dryer lasts 10 years. That means the depreciated or cash value today is now $500 ($1,000 x 5/10). A cash value policy would give you $500, but a replacement policy would pay you what it cost to replace your washer/dryer, probably $1,000.
Insure Everything as Replacement? Given this, you would probably want to insure everything you own with a replacement policy. However, things like antiques, rare or outdated items are generally excluded from a general home contents insurance plan since they can't be easily and readily replaced or the cost to do would be too high.
Also, very high value items might be excluded from your home contents insurance policy or your insurance provider may ask you to put them on a separate policy. Jewelry and diamond wedding rings are common examples.
Make Sure You are Covered. While many people are familiar with the general framework of homeowners insurance the specifics of home contents insurance is often overlooked. It is important to safeguard your belongings and understanding how they are protected will help you be prepared if something happens.