Choosing A Policy
Generally speaking, the type of insurance you purchase is dictated by your living situation. Most homeowners should purchase HO-3, renters will want HO-4, and condominium owners should buy HO-6. That said, a number of variables—including the value of your possessions or the age of your home—influence your insurance needs.
When choosing a policy, find out whether your homeowner insurance company reimburses based on actual cash value or replacement cost. Actual cash value (ACV), also known as market value, equals the replacement cost minus depreciation. Although the reimbursement amount is lower than the amount with replacement cost coverage, ACV is a good option if you don’t intend to replace the item that was stolen or damaged, and would like to receive cash for it as soon as possible.
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Although it requires a higher premium, you may want to purchase guaranteed replacement cost coverage, which requires your insurance company to pay the cost of replacing your damaged or stolen items without regard to depreciation. Guaranteed replacement cost coverage will likely require you to replace the item and retain the receipt before you are reimbursed.
Ask an appraiser to prepare an estimate of your home’s replacement cost, taking into account features like your home’s architecture or unique building materials. You should also inventory your home’s contents, including furniture, jewelry, clothing, artwork, recreational equipment, and appliances. Include receipts and take photographs. Leave a copy of your inventory in a safe deposit box or with a trusted friend, so the list will be safe in the event your home is destroyed.
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