Are Your Clients Adequately Covered?
While exact percentages vary, experts warn that a growing number of homeowners are underinsured. Inflation, fluctuating building costs, depreciation, and often, a misunderstanding of valuation methods are likely contributors to this trend. As a result, the importance of helping your clients properly assess the value of their home and belongings cannot be overstated.
Encourage your clients to:
- Create and maintain an inventory of personal assets, including serial numbers, date purchased, and price paid. Many helpful home-inventory applications can be found online.
- Re-evaluate coverage annually by checking the insurance policy against local building costs which can change dramatically from year to year. Check the policy for an inflation guard clause as well.
- Use a video to document the home’s interior and exterior. Include appliances, mechanicals, flooring, cabinets, roofing and any other structures on the property.
- Consider a “rider” for high-value items like jewelry, furs, silver, and other collectibles that might not be fully covered by the underlying policy. Estimate value/replacement cost and review and update annually.
Keep it simple . . .
Explaining the difference between actual cash value and replacement cost doesn’t need to be complicated.
Replacement cost covers the cost to repair or replace property with materials of the same or comparable quality (up to the limits established by the policy). If your client’s 5-year-old laptop is damaged by lightning, the cost of buying a brand new comparable model is covered.
Actual cash value covers the replacement cost less depreciation (a deduction to reflect the property’s age, condition, etc.). If your client’s 5-year-old laptop is damaged by lightning, the cost of buying a brand new comparable model less 5-years of wear-and-tear is covered.
Insureds sometimes opt for actual cash valuation for their policy because the premiums are a little lower (but so are the limits). Replacement cost is generally the more popular option.
This information is not meant to be all inclusive and should be used as a guide only. It is NOT intended to replace the guidance, advice, or recommendations from licensed insurance or legal professionals. Only the relevant insurance policy and endorsements can provide the actual terms and conditions for an insured.
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