Who decides how much my property is worth?

State laws may dictate how losses are to be figured, which means the same insurance company may use one method in one state and a different method in another. The common methods are:

Actual Cash Value
The replacement cost of the item minus depreciation. For example, a new television set may cost $500. If your 7-year-old TV set gets damaged in a fire, it might have depreciated 50 percent. Therefore, you would be paid $250 for that set.

Replacement Coverage
The cost of replacing an item without deducting for depreciation. So today's cost for a TV set with features similar to the 7-year-old one damaged by fire would determine the amount of compensation. If it still costs $500 today, that would be the replacement coverage.

Replacement value should not be confused with market value. The market value is what your house, for example, would actually sell for and is generally more than the replacement cost. This is because replacement value does not include the land, which almost always does not need to be replaced.

Check your policy. If you prefer replacement coverage and do not already have it, this coverage can be added to your policy. Typically, the difference in premiums is 10 to 15 percent to upgrade from actual cash value coverage to replacement coverage. However, it is well worth it to protect your investment in your possessions. We can advise you of the costs involved.

How much will I be paid for damage to my personal property?

Remember that homeowners insurance is designed to cover general personal possessions, not valuable collections like antiques, jewelry or original art. Insurance companies deliberately limit their coverage of expensive possessions so that household premiums are more affordable to everyone. After all, if they had to cover museum-level art collectors under standard homeowners policies, we would all end up paying higher premiums to cover those expensive items.

Your policy lists the specific monetary limits for personal property under what is called "Special Limits." Those limits usually are:

If these limits seem low to you (maybe that engagement ring is worth much more than $2,500), you may wish to talk with us about additional coverage for specific items.

Does my policy cover my possessions even when I go on vacation?

Yes, perhaps in this case the term "homeowners" is misleading because this is a package of insurance coverage that extends to all your possessions no matter where they are. If you take a round-the-world vacation and lose a valuable item, as long as the loss is by a covered event or peril, the location does not matter.

The liability component also extends well beyond the boundaries of your home. Should you be found legally at fault for injury or loss to another individual, whether you unfortunately caused a tumble down a San Francisco hill or a fall in an Indiana barn, that is personal liability which again is addressed in your homeowners policy.

As in the property section of your homeowners policy, there are limits and exclusions to personal liability. Your business activities, for example, are not covered under a homeowners policy. You are also not covered for injuries or damage you purposely cause. So if a fight with a neighbor turns physical and you end up bopping him on the nose, your homeowners insurance will not cover the injury or any resulting suit. Your policy lists specific exclusions and limits

I rent out my basement. Are my tenants covered by my homeowners policy?

No. Your property and the structure (the basement) are covered by your policy as is your personal liability. However, the tenants' possessions and liability are not covered by your policy. Therefore, they may wish to purchase their own renters insurance. Whether you are a lessor or a renter, you should check with us to make sure you have the right coverage.

My mother lives with us in a separate in-law suite. Are her possessions covered?

As a member of the family, she is probably covered under your homeowners policy. So too is your child away at college covered for personal liability or theft or damage to his or her property even in the dormitory or college apartment. However, you should check with us to be sure of the extent of coverage.

What about our vacation home in the next state?

Insurance companies can operate in more than one state. Because we are licensed to do business in New Jersey, Pennsylvania, New York and Connecticut, it means that we can handle your primary residence as well as your required vacation home insurance policies if the dwellings are located in any of those states. Personal liability is covered in the first homeowners policy so the second policy need cover only property. This type of policy is called a "dwelling policy."

If you rent out your second home for all or part of the year, your homeowners policy may need to be endorsed (added to) to cover the increased liability exposure. The renter's property is not covered under your dwelling policy. Should damage occur while someone is renting your property, they will need to check with their own agent about their coverage.

Part 1

Part 3

Date Posted to Site:   Oct. 2004

To Article / Research / Newsletters Index