How to Make the Most of Your Insurance Policy

Whether you rent or own your home, you need insurance to help rebuild if fire, tornado, hurricane or other disasters hit you. But what happens to replace your stamp collection after a flood or your Hummel figurines if your house blows away?

Many policies don’t cover or coverage on pricey jewelry, antiques, coins, collectible firearms and other exotic or expensive possessions. Or if they do, it is limited. (Some insurers even restict what they pay to replace top-end computers, according to the Insurance Information Network of California, or IINC.)

Generally, any coverage for these items is an aggregate amount less than a predetermined dollar limit, such as $1,000, for the total loss.

For example, Herb’s extensive coin collection is worth $50,000. His wife Peaches has an engagement ring worth $10,000. Under their normal home policy, a theft, fire or tornado causing a total loss of coins and ring means they may only receive up to $2,000 (assuming the aggregate coverage amount was $1,000 for each). Their net loss: $58,000.

Herb and Peaches can prevent such a hit with an endorsement (aka a rider or in some cases a floater) to their home coverage, a sort of added policy within the main policy.

Essentially an endorsement specifically covers an article of personal property either excluded or not fully covered in the main policy. Also, a policy floater allows you to insure valuable items separately and for higher amounts than under a standard homeowner’s policy, according to the IINC.

With such a rider – which comes at additional cost, usually higher in cities – your coverage includes much more, and you can choose your own deductible for the loss. Many endorsements also cover disappearance: If Peaches loses her ring while washing dishes, for instance, the rider can cover the loss – which the home policy doesn’t.

Generally, endorsements are an inexpensive way to broaden coverage under an existing policy, though you must get valuables formally appraised to set coverage.  Rates vary according to such factors as the type and documented dollar value of the item covered and where you, the insured, live. Coverage is often on an open perils basis – meaning any event not specifically excluded in the rider – with no deductible.

Travelers, to cite one insurer, offers special riders to expand the circumstances needed to trigger a payout; cover replacement cost with no deduction for depreciation (but with special limits on such items as jewelry, watches and furs); personal articles floaters; and additional replacement-cost coverage.

The insurer’s “Valuable Items Plus” coverage comes with higher limits and expanded protection for special classes of property such as jewelry, silverware, fine art, furs, cameras, musical instruments and home computers.

And here’s a nugget from Travelers: “Keep in mind that damage caused by floods is not covered by homeowner insurance.” A lot isn’t – insurers frequently change what is and isn’t covered even in existing policies. If you have questions, check with your state’s insurance regulator.

If you have valuables, inventory them, document their value and think hard about beefing up home coverage.

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Written by Sterling Raskie, CFP, an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill. He is an adjunct professor teaching courses in math, finance, insurance and investments. His blog is Getting Your Financial Ducks in a Row, where he writes regularly about investments, retirement savings and financial planning. His latest book is Lose Weight Save Money.

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