All homeowner policies automatically cover household contents. However, the way these contents are covered can vary greatly depending on the type of policy. Purchasing a cash-value homeowners policy means when you file a claim, your lost, stolen or damaged items will be paid out at a depreciated value.
On the other hand, a replacement-cost policy would pay for the cost of a brand new TV similar to the one that was stolen or damaged. You would get the full $1,000 back in the event of a loss, but at a cost of higher monthly premiums. Depending on your situation, replacement-cost coverage can be affordable. However, cash-value may be a better option for homeowners on a budget. In fact, experts estimate that opting for replacement-cost coverage over a cash-value policy could cost you up to 15 percent more each month in premiums.
Evaluate Your Options
While a cash-value homeowners policy can be a great option for some, it is not right for everyone. To discover what type of homeowners policy you need, take the time to analyze your home and possessions by making a list of your home’s contents. Waiting until after a catastrophic loss or devastating natural disaster is not a good time to realize you failed to adequately assess your insurance needs.
Take the following steps to carefully analyze your insurance needs and decide if cash-value coverage is right for you:
- Make an itemized list of everything that could possibly be damaged, lost or stolen in an incident, disaster or accident. Be sure to include household furnishings, equipment and any other personal possessions.
- Clearly identify the item by providing a brand name, serial or identification numbers, and a detailed description, including color, size, style, features and unique characteristics.
- Include the date the items were purchased or acquired on the list. This will prevent your possessions from being under-valued in the event of a claim.
- Note the purchase price of all items on the list—this is especially important if you have a cash-value policy.
Why You Should Consider Cash-value Coverage
A cash-value policy still gives you peace of mind by adequately insuring your home and its contents in case of a loss, but it also offers the benefit of lower monthly premiums. For many families, cash-value coverage is the affordable solution.