The majority of homeowners rely on their insurance agent to know they are insured properly. However, your agent can only insure you properly if he or she knows what you own.
The structure part of your policy is quite simple. When you purchase a new home, the mortgage company reports the value to the insurance agent. The insurance company uses that number to determine the contents coverage, which is based on a percentage of the value of the structure.
Unless you share what you own with your agent, you won’t be sure you have enough coverage on the contents. If you have collections, fine art, jewelry, firearms, and other items that have a coverage limit (these are listed in your policy), you could be grossly underinsured.
Another factor is the value of your standard household items. You might have a small, comfortable house you’ve owned for years. If you have an extraordinary number of televisions and other electronics, and purchase mainly high-end furniture, clothing, and decorative items, you might need additional insurance.
Unfortunately, homeowners often underestimate the value of their personal property, or don’t realize the implication of not disclosing this information when the policy is written. Sadly, I’ve also learned that agents sometimes don’t take the time to question their new policyholder about these items. This can result in not having enough coverage.
To know the true value of your contents, complete a home inventory. Once itemized, you’ll have a much better idea of the amount of contents coverage you need. Share this inventory with your agent!
An inventory client is a case in point. Her home was valued at $175,000, and the insurance company used 70% of the home value to determine contents coverage, resulting in contents coverage of $122,500. She had beautiful, and expensive, taste. Her decorative items alone totaled over $200,000, but failed to tell her agent this. And he failed to ask that important question. Had she suffered a loss, she would have maxed out her policy very quickly, resulting in a devastating financial loss!
Will the initial policy always be enough coverage? Request an annual insurance review. During the year, report any major purchases that could exceed your contents coverage. Remodeling, finishing a basement, adding a pool, upgrading landscaping, etc., can add up quickly and require an adjustment to your structure coverage.
Keep your agent informed, and take the responsibility of your insurance coverage seriously. Ensuring proper coverage will help you receive a claim settlement that will get you back to where you were, rather than facing a huge financial loss.