Avoiding Three Personal Property Insurance Pitfalls

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Personal property is exactly that: Personal. Your personal property, or as I like to call it, ‘your stuff,’ impacts your daily life and in the event of a loss you will need or want this ‘stuff’ replaced.

— Dawnyel Smink, owner of Canyon Lands Insurance, Mesa, Arizona

Not Understanding Your Policy

When buying your policy, take the time to read the fine print and ask the insurance agent about those complicated clauses loaded with industry vernacular that you do not understand.

Not comprehending the difference between replacement cost and the cash value of property throws many policyholders for a loop when they have to file a claim, said Dawnyel Smink, owner of Canyon Lands Insurance in Mesa, Arizona.

Replacement cost pays the dollar amount needed to replace your property while cash value pays damages equivalent to the replacement value minus depreciation. Thinking these are interchangeable could leave you shaking your head in disappointment when it is time to collect.

“Replacement cost is usually available as an endorsement to your personal property insurance," Smink said. "There is a cost for this added insurance, but the additional premium is well worth the cost if you ever need to file a claim.”

The same goes for homeowners insurance policyholders who don’t understand the difference between replacement cost and the market value of their home, explained Jim Yuhas, insurance operations specialist with AAA Arizona. If you assume that everything in your home is covered under your homeowners policy, it may be worth a call to your insurance company to verify that everything you think is protected really is protected.

“Homeowners insurance uses replacement cost as one of the factors to determine policy premium,” Yuhas said. “A single homeowners insurance policy may not be enough to cover all the property you own.”

Under-insuring

Too often, policyholders learn that the insurance they have been paying for is inadequate after losing the very items they thought were protected, said Nicole Farr, spokeswoman for the Arizona Insurance Council.

While a standard homeowners or renters policy covers furniture, clothes, sports equipment and other personal items if they are stolen or destroyed by fire, hurricane or some other type of natural disaster, it will likely cover losses only up to a certain amount, and only a portion of pieces of greater value.

Unless specified, most policies have limitations on certain items that can hold exceptionally high worth, such as fine jewelry or art, guns, silver or the mink coat that you inherited from your late aunt. Electronic equipment or power tools used for business purposes, golf clubs and other sporting gear used in your spare time, and musical instruments also fall into this category and typically will not be fully covered.

To make sure they are protected, check with your agent and take steps to insure them beyond the coverage provided by your regular policy, Smink suggested.

“These items can be added to the policy for an additional premium and typically require a recent appraisal," she said. "The most common item that I schedule on a policy is a bride’s wedding ring due to the value and the overall importance to my clients. Review your policy with your agent and talk about what valuables hold the most importance to you in regards to replacing them.”

Most policies will pay only up to a set dollar amount — usually about 40 percent of the policy on the home itself. If you feel your property is more valuable than what's covered, talk to your agent about a separate rider to boost the personal property coverage.

Not Knowing What You Have

It takes some effort, but if you must file a claim, you will appreciate the time you spent creating a detailed list of the property for which you require coverage.

Farr recommended software such as Know Your Stuff, a free downloadable program from the Insurance Institute for Business and Home Safety, which helps you create a record of inventory and keep track of it.

“This will make the claim process much easier if something should happen,” Farr said.

In addition, taking a video of your personal property is a prudent backup step. Smink advised keeping the catalog and video of your items away from your home, or asking your insurance agent if she will keep a copy in her file.

On the flip side, it’s not unusual to want to insure property for which sentimental value far outweighs its actual value. For this reason, antiques, collectibles or items that are obsolete and not in working condition may be difficult to insure because they are not easily replaced at any cost, Smink said. Some companies offer separate policies from your homeowners or renters insurance, but they are often expensive.

“Personal property is exactly that: Personal,” Smink said. “Your personal property, or as I like to call it, ‘your stuff,’ impacts your daily life and in the event of a loss you will need or want this ‘stuff’ replaced." You should ask yourself if you are protecting what matters most to you, she said.

If you foresee any of these scenarios applying to you, it’s not too late to prevent them. Usually, all it takes is a conversation with your insurance agent or carrier.

“Consumers can avoid these pitfalls by developing a relationship with their insurance agent, asking questions and keeping an open line of communication with them,” Yuhas said. “It’s a good idea to touch base with your agent at least twice a year to review policies and coverage.”

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