Wealth Management Perspectives

Wealth Management Perspectives Archive

Nicholas
Steward

With this spring's stormy and destructive weather providing a graphic reminder of just how vulnerable both people and property are, it is a good time to review all of your insurance policies. Making sure that you have appropriate and adequate coverage on both your life and your property should be at least an annual exercise.

This year special attention should be directed towards the personal property scheduled under your homeowner's policy. Many homeowners have long-standing insurance coverage that has been extended throughout the years, but may not have been recently re-evaluated for current needs and possessions. The schedule lists property that has limited coverage under most plans. Certain items such as jewelry, coins and antiques that contain precious metals might very well have jumped in value since they were last appraised and therefore, may lack enough coverage in case of damage or theft. Be sure to check your policy or confer with your insurance agent if you have questions about what is and is not covered.

For most homeowners the vast majority of personal property, such as tables, TVs, clothing, etc., would be covered for listed perils¹ under the home's policy. The value attached to your contents as a whole is based on a percentage of the house's value and this percentage is usually between 50% and 75%, depending on the insurance company. For example, if your home is worth $500,000, your contents coverage would range between $250,000 and $375,000.

Another aspect of the coverage is how insurance companies value the items that are damaged or destroyed. Under most policies, Actual Cash Value is the standard value measure. Actual Cash Value is equal to Retail Replacement Value (the retail price of a comparable item today) less depreciation. Unfortunately, this means that if your five year old TV is lost in a fire, the insurance company would reimburse you the value equal to a new TV less five years of depreciation. But for an added premium, all items can be replaced with their retail equivalent or Retail Replacement Value.

While Retail Replacement Value is the most complete, though more expensive, coverage for standard household items, there are categories of items that have coverage limitations, often due to their value or rarity. These categories include collectables, such as jewelry, furs, cameras, musical instruments, silverware, artwork, antiques, golf and sports equipment, and stamps. For adequate coverage they must be scheduled or listed separately on the policy, and are subject to an extra premium.

When you make a claim on a damaged, lost or destroyed scheduled item, the insurance company will require either a receipt or appraisal proving value, preferably dated within the previous three to five years. Also, separate criteria are applied for the reimbursement of scheduled items with the insurance company paying the least of repair cost, replacement cost, the limit for the particular item or the total limit for personal property. Because each company might have their own procedures, this is a good reason for advance dialogue with your insurance broker.

Not scheduling an item that should be itemized can have serious consequences. If, for example, your $15,000 antique Chippendale table is lost in a fire, the insurance company will pay to replace it, but only to the value of a similar, contemporary table. The company will not take into account the added antique or rarity value of the original piece. Additionally, the coverage of some possessions is limited to certain dollar amounts. Depending on the insurance company, the limits for jewelry and silverware are usually between $2000 and $5000. Once again, clarification on coverage amounts is something that is too often overlooked or ignored until there is a need to file a claim; which is clearly too late.

Even if your possessions made from precious metals are scheduled, there is a risk of undercoverage. Over the last ten years, gold, silver and platinum have skyrocketed in value. From 2001 until today, gold is up over 400%, silver over 800% and platinum over 200%. The piece of jewelry you bought or had appraised even within the last few years may need to be re-appraised to ensure adequate coverage in today's market environment.

Each year when you receive your Coverages page from your insurance company for policy renewal, take an inventory of your special possessions. Which ones should be scheduled? Which ones should be re-appraised? In case of a loss, this short exercise may help you to recover their full value. While insurance proceeds will help to replace damaged items, nothing will replace the value of a detailed conversation with your insurance agent, to specify exactly what sort of replacement would apply to your household goods.

¹ Covered or named perils are occurrences that will be indemnified by the insurer. These are some of the typical covered perils: fire or lightning; windstorm or hail; explosion; aircraft; vehicles; riot or civil commotion; smoke; theft; vandalism; glass breakage; volcanic eruption; falling objects; weight of snow, ice or sleet; freezing of plumbing; accidental plumbing discharge; rupture of HVAC systems. Some perils not covered include: earthquakes; flood; neglect; war; nuclear hazard; intentional loss.

Nicholas Steward Sr. Portfolio Administrator/Account Manager

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