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Trevor Tarpinian, CEPA®, CIC
Licensed Insurance Counselor
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Insuring Your Personal Property

When you review your homeowners or renters insurance policy, you probably spend the bulk of your time reviewing dwelling coverage on the physical structure - and rightly so. It's one of the bigger dollar amounts on the declarations page. During this process, I tend to get a handful of questions concerning what perils are covered. Power surge? Earthquake? Flooding? However, I don't get as many questions about what perils are covered on one's contents (i.e., personal property).

There is a common misconception that the same coverage afforded to the structure of a house is given to the contents inside. I'd like to clarify that a policy could address structure and contents differently at time of claim, and go through the 3 types of coverage "forms" for personal property.

 The Types of Perils Covered

When we look at what is covered in an insurance policy, one of the questions we're asking is "what are we protecting against?" "What could cause us loss?" The answer is, in insurance-speak, a "peril." Insurance policies define what perils they do and do not insure, and they tend to band perils in a set or group. These three groups are labeled "basic," "broad," and "special" coverage.

If your insurance policy has a "basic" form of coverage, it will insure against these basic causes of loss: fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.

The policy wouldn't cover anything else. Just those listed perils. Flooding? Nope. War? Out of the question. Earthquake? If you don't see it in the list, then it's not covered. Fortunately, this "basic" coverage doesn't occur in most standard homeowners policies.

The second type of coverage is titled "broad" form because the policy covers a broader number of perils than the "basic." It covers the following causes of loss: fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action, falling objects; weight of snow, ice, or sleet; water damage (in the form of leakage from appliances); and collapse from specified causes. See what we added there? See what's not on the list? Earthquake? Flooding? Just like "Basic" coverage, "Broad" form coverage only covers what's in the list. If it's not on the list, it's not covered.

Third, we have the almighty "Special" form coverage. Why is it called special? It's broader than "Broad" form coverage and that makes its special. Instead of starting with a list of things it will cover, the "special" form starts with the language "we provide coverage for loss from any cause except..." Catch that? Any cause. This coverage form starts with the entire world of possibilities as its responsibility and then goes on to narrow it with a list of exclusions, such as but not limited to: ordinance or law, earth movement (including earthquake), flood or surface water, power failure, neglect, War, Nuclear Hazard, Intentional loss, freezing of plumbing, theft to a dwelling under construction, constant or repeated seepage. Not all policies are the same and yours may have more or less perils listed than the list above.

What sounds better to you? A list that starts with everything under the sun and then lists exclusions, or a policy that has strictly 14 or 18 things listed and only what's on the list is covered?

This leads to the big kicker...

Dwelling Coverage vs Contents Coverage

Most homeowners policy don't start with the same coverage forms for your contents as they do for their dwelling coverage. A conventional homeowners policy will usually give "special" form coverage on the dwelling (the actual physical structure of your house or condo). However, these policies tend to default to "broad" form coverage for your contents inside your home. That's right. In many cases they treat your house and your contents very differently. This goes for renters insurance also. Even though you don't have coverage for a structure in your policy, your default policy typically starts with "broad" not "special" form coverage on all your stuff.

Let that sink in for a moment while I add another layer of hurt on.

Actual Cash Value vs Replacement Cost Coverage

Once again, when we look at a homeowners policy, we spend a lot of time assessing coverage on the physical house or structure. We usually want to obtain replacement cost coverage not actual cash value on the dwelling coverage. Actual cash value takes into account the age and wear of a [part of a] house at time of claim and pays out a depreciated value for a claim. Replacement cost coverage essentially gets you back to pre-claim status with like kind and quality of materials - no depreciation factored in (which is why we generally prefer replacement cost over actual cash value coverage on our homes). Which would you prefer? Which would you prefer to have for your contents?

Do you expect that a policy offers the same coverage on your contents (personal property) as it does on the main house or structure? If you've read this far and think the answer is "yes," you're in for a treat.

In most cases the answer is "no!" You could be getting replacement cost coverage on the house, but most homeowners policies default with actual cash value coverage on your contents. So when that tree falls through your roof during a storm, you'll get a nice, new roof put on, but you might be getting garage sale price for the cabinet and clothes that the storm destroyed inside the house. Here's a fun thought experiment: how much do you think your clothes have depreciated since you started wearing them, particularly your socks and underwear?

Practical Application

The good news is that, in most cases, there are ways to obtain both "special" form coverage and replacement cost coverage on your contents in your homeowners or renters policy.

If these are not part of the base policy, there should be ways to add-on (endorse) these definitions on your policy and therefore obtain these valuable coverage definitions.

There could be a chance that your policy doesn't allow for either of these optimal definitions. Not all homeowners and renters policies are the same, and, generally, you get what you pay for.

If this is your case, and your current policy does not offer special personal property coverage and replacement cost of personal property, or if you're unsure about how your personal property is covered, click the "contact us" button and ask my office to review your personal property coverage with you to see if you're receiving both "special" personal property coverage as well as replacement cost coverage on your contents.

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