Comments on: Are You Insuring the Irreplaceable?

By: Grant

Grant — Thu, 18 Dec 2008 21:53:00 +0000

Unless you have a separate rider, you are not going to be able to assess a higher value on a lost item just because it’s personally valuable to you.

Also, as someone noted, there is often a set value for insurance on the contents of a home (with a homeowners policy). I asked about this when I moved and got a new policy. I was at the minimum and the contents coverage was something that still seemed very high, like $200,000.

FYI, there is home inventory software out there. One is KnowYourStuff.org, which is free to use but charges a fee to securely store the database of your stuff for you.

By: Ann

Ann — Wed, 17 Dec 2008 22:56:24 +0000

Maybe you should take a nice snapshot of your grandmothers painting in case it should ever be ruined. Then at least you’d still have a fascimile.

By: AnnJo

AnnJo — Wed, 17 Dec 2008 16:34:11 +0000

Years ago I was helping a man whose uncle had died in a house fire that damaged or destroyed the house and contents. (Much of the damage was from smoke and water, not the flames.)

The man had replacement cost coverage. The list of contents the claims adjuster produced was surprising.

First of all, EVERYTHING was inventoried, down to the used toothbrushes, the light fixtures and BULBS, the window coverings, the old clothing. Second, the “replacement cost” estimates seemed to me consistently on the high side. On what was a very modest home filled with old modest furnishings, the total value of the contents ended up well over $100,000 and this was nearly 20 years ago.

By the way, this highlights one of the ways to protect valuable photos and items of sentimental value – protect against smoke and water, even if you can’t protect against flames, and there’s a chance some stuff will survive.

By: Insurance Guy

Insurance Guy — Tue, 16 Dec 2008 22:29:37 +0000

If the insurance company is giving you 120% replacement value (Troy Comment#4) then you should not include that into how much insurance to take as a replacement amount. This 120% should be used in the event the replacement of your home starts to differ from building material costs. It’s a buffer zone. Also, their are companies out there that offer guaranteed replacement coverage with no cap unlike the 120% a lot of insurance companies give. These are the kind of policies everyone should have. Ask an independent agent, they can help.
Also, buy as much liability insurance on your car as you can afford, because it will save you a heck of a lot of money on the long term in the event you hit somebody and they are severely injured.
As an agent I deal with this everyday and believe me, I see instances of people being ‘cheap’ and buying the lowest limits the state allows only to run a stop sign and disable somebody!

By: anne

anne — Tue, 16 Dec 2008 21:36:25 +0000

This is a nice reminder. I’m pretty sure my renters insurance is for replacement value not ACV. I estimated high on most things, especially clothes and shoes because I figured the things that would result in a claim (fire, flood) would leave me with little time to bargain shop before I ended up having to go to work naked. I lowballed all my furniture though because, while it’s all nice handmedowns, it’s all handmedowns that I would never replace with comparably nice items. I just don’t say no to free stuff.

By: John

John — Tue, 16 Dec 2008 20:05:30 +0000

Insuring you vehicle for the state minimum is stupid. That is as blunt as it gets. If you would like to self insure go for it, but self insure on a fixed cost item such as property (such as your house or your car if you really want to take that risk) but buy all the liability insurance you can afford.

By: Steph

Steph — Tue, 16 Dec 2008 18:34:58 +0000

I never would have thought of this- very good point and thanks a lot for bringing it up.

By: My Journey

My Journey — Tue, 16 Dec 2008 17:10:21 +0000

Funny you wrote this….when I was driving the other day a rock hit my windshield then I ignored it (of course) until that little scratch turned into an 8 inch crack!

I called up GEICO and wouldn’t you know that was covered and didn’t cause me to use up my deductible!

Know what you are playing for

By: Michael @ The Life Insurance Insider

Michael @ The Life Insurance Insider — Tue, 16 Dec 2008 15:58:22 +0000

I agree with you that the content amounts do seem pretty high and arbitrary. I doubt you will be able to reduce the coverage amount since they are usually based on the amount you have the building insured for. You can usually add specific high priced items that are appraised and cover them separately, but I’ve never seen a homeowners policy that lets you name your content coverage amount.

By: Saver Queen

Saver Queen — Tue, 16 Dec 2008 15:58:11 +0000

Vicki Robin and Joe Dominguez make the same point in Your Money or Your Life. Why pay to insure the irreplaceable?

By: Jenny

Jenny — Tue, 16 Dec 2008 15:26:43 +0000

Hi Trent, I discussed this post with my fiance, and he had an interesting point to make. What if there were a fire in your kitchen that created severe smoke damage throughout the rest of the house without destroying the contents? Would you then be able to use insurance money to send your great-grandmother’s painting to a museum-class art restorer?

By: jessica

jessica — Tue, 16 Dec 2008 14:11:28 +0000

There are two types of contents insurance: value of the item at the time, and what it would cost to replace it with a new item of the same caliber. We have the “replace it with a new item of the same caliber” type. So, God forbid, we lose the contents of our home. We have a 10 year old tv. IF we tried to sell it we might get $50. We certainly cannot buy a new one for $50! Or a 6 year old mattress- definitely not going to get back what you paid if you try to sell it. Likewise our furniture- some of it, my husband and I finished ourselves. Can we get back the cost of our labor and the value of our time? No.

For heirlooms, unless it is something like a stamp collection or baseball cards that you could actually go and repurchase the exact same things, I don’t think it’s worth insuring their value. We do not have antiques or many valuable items (we’re rather frugal and our families were rather poor), but we do have a lot of photos that are meaningful to us. No one could give me enough $$$ to replace those, but there’s no real way to insure them either.

By: Lisa

Lisa — Tue, 16 Dec 2008 13:30:09 +0000

I agree that you can’t put a replacement value on family treasures. I have paintings and drawings that mean as much to me. I have taken photographs of them to share with family and for safekeeping. I even have a photo of one of them framed in my office. Handmade or handed down gifts cannot be replaced so a photo would be the next best thing for me.

By: Sharon

Sharon — Tue, 16 Dec 2008 08:23:31 +0000

We pay an extra $50 a year for sewer/water backup damage. Cheap peace of mind!

By: Attagirl

Attagirl — Tue, 16 Dec 2008 06:50:26 +0000

If California falls into the sea, almost every homeowner there will be out the money. Land movement is specifically excluded from a standard homeowners policy unless you buy earthquake insurance. Landslides, mudslides, sinkholes – too bad. That is ‘land movement’ and is not considered included. There are very few ways to insure damage or contamination to land itself. Those policies are extremely expensive, mostly to prevent claims, which are even more expensive. In general, applicants are screened to make sure there is no risk of a contamination claim before a policy is written. This is why you are asked to disclose old wells, underground fuel tanks, and nearby dairies – because of the risk of groundwater contamination. With regard to insuring only the cost to rebuild the house, it’s true that this is the number you want – but consider that it is almost always more expensive per house to rebuild one house than it is to put in a subdivision. You lose all the economies of scale. You can’t spread out the costs. The cost to replace a house is usually more expensive than you’d think and often higher than market price, which has no relation to cost of materials. Regarding ‘irreplaceable’ items, the usual process is to schedule these on a rider or floater at a ’stated price’, which is what the premium will be based on. The higher the price you state, the higher the price of the insurance. However, that is *not* the guaranteed amount you’d get if the item were damaged or stolen. You’d get the lowest of four figures (and now I’m operating off memory, so-) cost to repair, actual cash value, difference in value (after damage) or stated value. On the other hand, objects falling from the air are a covered cause of loss– probably because it’s rare!

By: Nick Dunlap

Nick Dunlap — Tue, 16 Dec 2008 06:20:38 +0000

Great article. That is something I have never thought about.

By: Frugal Bachelor

Frugal Bachelor — Tue, 16 Dec 2008 05:19:29 +0000

“The home should be insured for the replacement cost. The appraised value includes the land it sits on, which to my knowledge has never been lost in a claim.”

What happens for something like a hurricane where the flood destroys the land and leaves a large lake where the land once was? Or forest fire cases, or more odd ball thing such as meteor strikes destroying a house and its ground? How are those all handled? It seems like without global warming we will have a lot of land go under under which will be interesting for the insurance companies. What would happen if California fell into the sea?

By: Sharon

Sharon — Tue, 16 Dec 2008 04:39:35 +0000

Not to be too contrarian, but in some cases of chemical contamination, the land, too, can be lost. And if you have rental properties, make sure they are insured against chemical contamination. One meth lab and you can lose your entire net worth.

By: steve

steve — Tue, 16 Dec 2008 04:36:02 +0000

@”If all you have is the minimum insurance on your car, especially liability, all you “self-insurance” money could end up in the pocket of your victim someday, including your house, your retirement account, kid’s college funds etc.”

This is absolutely true, if you own a home your liability and property damage coverage on your car insurance should be high enough to cover any reasable damage to protect your own assets against a damages judgement.

Also, if you live in a state that allows a “declaration of homestead”, you should have that done for your house. I live in Massachusetts, which allows such a declaration, and many other states do as well. What it does is prevents your primary residence from being attached in any legal judgement. It costs very little to have done and is excellent protection against having your house taken from you as a result of any kind of lawsuit.

By: steve

steve — Tue, 16 Dec 2008 04:32:24 +0000

“The home should be insured for the replacement cost. The appraised value includes the land it sits on, which to my knowledge has never been lost in a claim.”

An excellent point. The one thing I would be careful of though is making sure your estimate of replacement cost is conservative and realistic and will actually cover the cost of rebuilding.