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One of the biggest challenges we face as a water damage company and one of the most common pain points homeowners experience is discovering the ugly truths about their insurance policy once they go to file a claim. For most people, they assume their insurance company is going to make them whole after a loss. If you’ve never filed a claim before and you’ve always paid on time, isn’t that their responsibility? Unfortunately, in too many cases people discover just how inadequate their policy is. That’s especially true when it comes to the contents of your home. In this blog post, let’s delve a little deeper into some of the issues that can arise when trying to replace the household items that were damaged from flooding.
Understanding your policy’s stance on replacing damaged items
If you go to file a claim with the expectation that your insurer is going to fully reimburse you for the full cost of replacing water damaged contents in your home, you may be in for a huge surprise…and not the good kind. When it comes to policies that cover replacing contents, there are 2 types of coverage for these household items:
Replacement cost and actual cash value
If you have ‘replacement cost’ coverage, it means your insurer will cover the cost to replace the items with contents of the same likeness and quality. If you have ‘actual cash value’ coverage, your insurer will deduct depreciation of the items before issuing you a reimbursement. In other words, if you have a 4 year old computer, instead of getting a check for the full cost of replacing the computer, the check will be for an amount the insurer deems fair after deducting the depreciation of the computer’s value over the course of those 4 years. That’s a huge difference, as the value of that computer is significantly less than the cost to replace it with a new one.
What policy type makes sense for you?
As with any decision you make with regards to your homeowners policy, you have to weight the risks with the upfront savings/costs. We can’t answer that question for you, but we can help you get a clearer picture about the implications of each and hopefully from there you can decide for yourself what makes sense.
Is your primary goal to save as much money upfront?
If that is your goal, then there is no question that an ‘actual cash value’ policy makes sense. On average, you can expect to save about 10% on your monthly premium versus ‘replacement cost’ insurance, so if saving that money upfront is most important, then it’s a no brainer decision.
Is your home full of items that depreciate in value?
If you have a property chalk full of items that depreciate in value, and your primary goal is to make sure you’re made whole should those items be ruined, then ‘replacement cost’ insurance is your best bet.
What about expensive items like jewelry, artwork & computer systems?
Traditional policies typically set limits for coverage on expensive items damaged or destroyed on your property. You’d be shocked at just how low that limit is, usually around $1,500 or so. If it is the case that you have a lot of personal possessions stored in your home of considerable value, you’re going to want to add a rider to your policy to cover those items. You’ll need to have each item appraised, and once insured, you will be protected against damage, theft, or accidental loss of the items.
Always know your policy’s coverage & make changes accordingly
We get it…reading your policy and actually understanding your protection is about the most boring thing on earth. It’s why almost nobody does it, and also why so many people are left with their jaws on the floor when they go to file a claim only to find out there is a massive gap between what their insurer will reimburse them and the actual cost to replace everything that was destroyed from the water damage.
Insurance policies can be full of confusing terms and run-on sentences that are tough to comprehend. Don’t be afraid to call your insurance agent and have a discussion with them about your policy. Ask questions, explain your unique situation as it pertains to household items, and make sure your policy is ultimately designed with you in mind, not just a generic policy.