Loss and Recovery

The value of the real property—your home, garage, shed and other structures—is generally based on the value of your house. Homeowners insurance also covers your personal property, including the contents of your home and any personal belongings you or members of your household use, own, wear or carry—basically everything and the kitchen sink. This coverage is also based on your house's coverage, and there are limits on the losses that can be claimed for certain items, such as cash, furs or jewelry—limits that can be increased with supplemental premiums. You can also pay an additional premium to cover living expenses if your home is not habitable for a period of time.

Most insurance companies now offer guaranteed replacement cost coverage —the coverage that helped the Silva family rebuild their home after the fire. Replacement cost coverage pays to repair or replace damaged homes without a deduction for depreciation or a dollar limit. If an old TV set damaged in a fire costs $500 today, replacement coverage will pay the full cost. Because the Silvas had guaranteed replacement cost coverage, the insurance company paid out the full cost of rebuilding their home and replacing their possessions. Without it, they would have only received the actual cash value—the replacement cost minus depreciation. In the case of the old TV, if its value has depreciated 50 percent, actual cash value coverage would pay only half of the replacement cost, $250. Unless a homeowners policy specifies that property is covered for its replacement value, the coverage is for actual cash value. An upgrade from actual cash value to replacement coverage typically raises your premium 10 to 15 percent.

If you were to suddenly lose your home due to fire or a tornado or have the contents damaged or stolen, you probably could not afford to replace everything all at once. By becoming familiar with your homeowners insurance policy, you will be sure to have the coverage you need when you need it.