Adding Christmas Gifts to Your Homeowner’s Insurance

Homeowner’s InsuranceThe Gallup poll has estimated that American’s will spend on average $781 this holiday season. This number is up nearly $100 since last year. Since people are planning on spending more this year, you can assume that you’ll also be receiving more this year. The one thing you’re probably not concerned about is adding your Christmas gifts to your insurance policy. You probably already have a homeowners or renters insurance policy (and if you don’t, you should). However, relying on your homeowners insurance to cover all of your new gifts might end up being a tragic mistake.

Your homeowner’s insurance policy might have coverage limits for personal possessions and there may be sub-limits for certain types of property. For example, your policy may have a dollar amount limit on jewelry and if you receive an engagement ring, a tennis bracelet, or a nice watch for Christmas, you may go over that limit, leaving some of your valuables unprotected.

The other factor you’ll want to look into is whether or not your insurance policy limits use actual cash value or replacement cost. The ‘actual cash value’ is the cost to replace the item with a new item that is similar, minus depreciation for that item. The ‘replacement cost’ is the cost to replace the item with a new similar item. The main difference is whether or not depreciation is subtracted from the value of the item. For example, if you purchased a TV a few years ago, an actual cash value coverage policy will reimburse the original cost of the TV, minus depreciation whereas a policy with replacement coverage would reimburse the cost of a new TV.

From Lakewood Financial, we suggest that after the holidays, you call your local insurance agent and review your home insurance policy and adjust it as necessary to make sure that you and your assets are properly protected. Happy holidays!

Homeowner’s Insurance Replacement Cost Value Explained

Lakewood Financial Homeowner's InsuranceHave you ever wondered why the property appraiser has your home valued at ‘X’ and the home is insured for ‘Y’? Or maybe your home’s tax assessment is much lower than your home’s current insurance? The discrepancy between those values can be easily explained if you know how your property is valued. 

There are 3 important values: replacement cost, market value, and tax assessment value.  These values will, more likely than not, not be the same.

The market value, or appraised value, is how much the property is worth to another buyer and includes the value of the land.  The market value is the value used for loan underwriting purposes and is the most likely value of the property if it were to be sold. The market value is probably the value that you think of when you think of the value of your home. The market value can fluctuate wildly depending on market conditions and is nearly irrelevant to insurance companies.

The tax assessment value is the value placed on a property for municipal tax purposes.  The tax assessment value is somewhat tied to the market value, but it is more heavily influenced by the local municipality and generic market conditions. 

The replacement cost of the home is essentially the cost to re-build the home without the cost of the lot or the land. The replacement cost is the only valuation that insurance companies are interested in and it is driven by the cost of materials & the cost of labor in that area. Keep in mind that included in the replacement cost is the assumption that a loss occurred.  In order for the insurance company to have to re-build your house, a ‘loss’ (like a fire) happened. This means that before the insurance company can begin re-constructing the house, they will have to clear the area of debris to prepare it for the rebuilding.  This cost is included in your replacement value cost.

The important thing to remember is that each house is unique and these values cannot be interchanged.  Ultimately, insurance is about protecting yourself. If your coverage is insufficient, it can lead to negative financial consequences.  The best thing that you can do is work with your local insurance agent, who is acting as your advocate.  At Lakewood Financial Services, we are your personal safety net.  If you have any questions or concerns regarding your coverage, we’re always here for you