If you have a homeowners insurance policy, you should be aware of what the insurance does and does not cover. These policies have their limitations as well as their underrecognized perks.Some policies insure actual cash value (ACV). ACV factors depreciation into an item’s worth. If someone makes off with your expensive camera that you bought five years ago, a homeowners policy that reimburses you for ACV would only pay for part of the cost of an equivalent camera bought new today.1
Other policies insure replacement cash value (RCV). That means 100% of the cost of an equivalent item today, at least in the insurer’s view.1
Insurers cap losses on certain types of items. If you lose an insured 42” flat-screen TV to a burglar, the insurer could reimburse you for the RCV, which is probably around $300. An insurance carrier can handle a loss like that. If a thief takes an official American League baseball from the 1930s signed by Babe Ruth out of your home, the insurer would probably not reimburse you for 100% of its ACV. It might only pay out $2,000 or so, nowhere near what such a piece of sports memorabilia would be worth. Because of these coverage caps, some homeowners opt for personal floaters – additional riders on their policies to appropriately insure collectibles and other big-ticket items.1
Did you know that losses away from home may be covered? Say you have your PC with you on a business trip. Your rental car is broken into and your PC is taken. In such an instance, a homeowners policy frequently will cover a percentage of the loss above the deductible – perhaps closer to 10% or 20% of the value above the deductible rather than 100%, but still something. An insurance company might put a $200 or $250 limit on cash stolen away from home.1
Where you live can affect coverage as well as rates. If you reside in a community with rampant property crime, your insurance carrier might cap its reimbursements on some forms of personal property losses lower than you would like. (The insurer might even refrain from covering certain types of losses in your geographic area.)1
Now, do you have a home-based business? If you do, you should know that homeowners insurance will not cover damage and losses to your residence resulting from or linked to business activity. (The same holds true for a personal umbrella liability policy.)2
Having a separate, discrete business insurance policy to protect your home-based company is important. Without such a policy, you have inadequate coverage for your business – and could you imagine losing your home from being uninsured against a visiting client’s bodily injury claim or a workers’ comp claim if employees work at your residence and hurt themselves?2
Reading the fine print on your homeowners insurance policy can be worthwhile. Recognizing the basic limitations of homeowners insurance coverage is critical. You should know what is and is not covered – and if you see any weak spots, you should address them.
Greg Ferguson may be reached at 952-406-8316 or greg@fergfin.com.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – nasdaq.com/article/3-caveats-about-your-homeowners-insurance-cm771517 [4/10/17]
2 – washingtonpost.com/lifestyle/home/if-you-work-from-home-and-dont-have-this-insurance-you-could-be-at-risk/2018/02/23/23a4a42a-1754-11e8-92c9-376b4fe57ff7_story.html [2/23/18]
