When purchasing renters or home insurance, you need to know the value of your possessions in order to purchase the right amount of coverage. However, studies show that most people do not know how to properly estimate the true value of everything they own, and are subsequently finding themselves sorely underinsured when disaster strikes.
Do You Have Enough Home/Renters Coverage?
Instead of just guessing how much your possessions are worth, use these 3 simple steps to get a more accurate estimation of the true value of your belongings. This will help you avoid overpaying for too much insurance, and it will prevent you from being under-covered in case you do need to make a claim at some point in the future:
Step 1: Create extensive records of your possessions
It is recommended that you take close-up and wide-shot pictures of individual belongings. Then, make an item-by-item list so that if necessary, you can quickly skim it to see what items are documented in the photos.
Some people find it easier to keep their lists of belongings grouped according to the rooms they are located in. Others group their belongings by item type, such as jewelry, artwork, books, furniture, etc. However you decide to record your possessions, its a good idea to store the information in at least two different places.
Also consider keeping a hard copy of all of your lists and photos in your office at work and also saving them to a folder on your computer.
Step 2: Consider the difference between fair market value and replacement value
With fair market value, once an item is lost, youll receive the current, slightly depreciated value of the item. If your policy provides you with the replacement value, youll receive the amount it costs to replace the item with another one of comparable value.
The difference between these 2 valuations can be significant, so be sure you know which type of coverage is offered through your insurance policy. Watch this quick video for a clear description of the 2 valuation methods often used by insurance companies:
Step 3: Do your research
Even though your kitchen table may have cost you $500 when you first bought it, a comparable new one could cost you double that amount, so thats the amount you want to be covered for. Check out websites and local furniture stores to see what comparable prices are.
Imagine if you had to replace everything you own. The new-purchase value of these items would likely be quite a bit (don’t forget all the little items you own – they add up too!). Having an accurate idea of the replacement value of ALL your items can help you have a good sense as to what you should expect from your insurance policy in the case that you do need to replace your possessions.