Homeowner’s Insurance – What about Your Stuff
Written by: Twin City Group
Aren’t all homeowner policies the same? If I compare the dwelling limit and deductibles, isn’t that apples to apples? The answer to both questions is “NO”. Homeowner policies differ in what they cover, but more importantly, what they don’t cover. The insurance industry uses “forms” to differentiate between types of policies and the coverage afforded. We should consider the difference between the two types of forms: an HO3 form (what most companies use) and the HO5 form (what the better shopper will ask for).
Simply put, the HO5 form provides better coverage for your stuff. With the HO5 form, your personal belongings are covered for “Open Perils” but under the HO3 form they are limited to “Named Perils” which restricts when an insurance company has to pay. The HO3 form also contains “sub-limits” on certain groups of items. Sub-limits are limits within limits. For example, your HO3 policy may provide $100,000 in coverage for your personal property, but luxury items like jewelry, fine arts, musical instruments, and firearms normally have a sub-limit of $3,000.
A homeowner recently purchased a baby grand piano for $50,000, ½ off the retail price. She was very excited about her purchase, but not so excited about her exposure due to the sub-limit on this luxury item. This requires the insured to purchase additional coverage for this type of property and pay an additional premium.
Most homeowner policies are written on the HO3 form, as a result the sub-limits must be addressed using a Personal Articles Floater, which can be added onto the HO3 policy or purchased as a stand-alone policy.
The Good News
The good news for the homeowner is that insuring your valuables separately using the Personal Articles Floater (PAF) is not as costly as most people would anticipate. Also, these valuables are typically insured on a worldwide basis which can come in very handy if your $20,000 Rolex is stolen from your hotel room while vacationing on some far-off and exotic island. The PAF will typically cover for the mysterious disappearance of an item which means one minute it was there, and the next minute it wasn’t. To save money on the insurance premium, the insured may wish to keep their valuables in a safe or vault, but will usually need some proof that you are doing so. In most cases, a receipt from your bank’s safe deposit department will be sufficient.
The Bad News
The not so good part of the PAF, is that a replacement value of your jewelry, fine art, furs, firearms, antiques or collections will have to be established by submitting a fairly recent appraisal from a legitimate appraisal company or the receipt for purchase if the items are fairly new. And most importantly, proof of loss will have to be submitted in the event of a claim. Proof of loss simply means that you can prove the value and prove that you owned the item(s) in the first place. The simplest way to prove ownership is by keeping an inventory of the items listed on your Personal Articles Floater. The most common way to accomplish this is by:
- Keep your inventory on a spreadsheet and update it as needed
- Use a software program or free online program and update regularly
- Video or photograph each item with a reference point in your home and keep a copy of it offsite
- Invite your insurance agent to your home to help inventory your luxury items
To make certain that there will be concrete evidence that you actually owned the item, it’s recommended that all receipts, appraisals, and description of the item(s) be uploaded into any of the software programs available or documented with your insurance agent. Many of the larger insurance companies that allow their policyholders to have an online account with the company will offer some type of home inventory for free. By using an online program offered by the carrier, you may feel even more comfortable that information concerning your valuable contents is safe and secure.
This blog is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.