Homeowners insurance policies automatically cover household contents. But the way these contents are insured varies 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.
Instead, 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
A cash-value homeowners policy can be a great option, but it is not for everyone. Take the time to analyze your home and possessions by making a list of your home's contents to help you understand the type of homeowners policy you need. It is not a good time to realize you failed to adequately assess your insurance needs until after a catastrophic loss or devastating natural disaster.
Use these three guidelines to analyze your insurance needs and decide if cash-value coverage is the right choice:
- 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.
- Identify items by brand name, serial or identification numbers, and a detailed description, including color, size, style, features and unique characteristics.
- Include the purchase or acquisition date. This will prevent your possessions from being under-valued in the event of a claim.
Why You Should Consider Cash-Value Coverage
A cash-value policy can provide peace of mind by adequately insuring your home and its contents in case of a loss. And it also offers the benefit of lower monthly premiums. For many families, this is the most affordable solution.
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