I recently wrote a post on how to get homeowner's insurance and how to save money on it (and car insurance) as well. The post prompted this comment/question from a reader:
I'm in the process of reviewing our renter's policy. One problem we have is whether to go with a large policy that covers the replacement cost value of every possession we own--down to stuff like the Brita filter in the fridge, but also to have a high deductible (e.g., $1000).
OR
Whether it makes more sense to insure 60-70% of our possessions' replacement cost value, but have a lower deductible (e.g., $250).
We have ruled out both high coverage and low deductible because the cost becomes too significant.
This is a question of whether I'm insuring for major/catastrophic risks like fire, or whether Im insuring for likely partial losses like theft. (Even if a burglar breaks in, he's not going to take my wife's $500 Prada shoes! But a fire doesn't discriminate.)
I can't figure out which risk makes more sense to insure for.
I couldn't really answer him without more info, but another reader commented with some good, basic advice:
Derek, I'd consider two things - one is the total limit you want, the other is whether you want replacement cost valuation or actual cash valuation on your stuff. The limit only you can determine. Regarding, replacement cost value vs. actual cash value, replacement cost is almost always worth the added cost, even if you need to take a higher deductible to afford it.
By the way, another thing that people often overlook with homeowners' and renters' insurance is that coverage for jewelry is usually limited to $1500, and regular homeowners usually doesn't cover something like a stone just falling out of your wife's engagement ring and getting lost. If you've got expensive jewelry (particularly if it is being worn), buy a jewelry floater policy. It's not cheap, but it's worth it.
For those homeowners out there, I'd suggest asking your agent about one more thing - "guaranteed" replacement cost value for your home. That means if you have your home insured for $200k and it actually costs $300k to rebuild, the insurer still has to pay $300k. Without guaranteed replacement cost, you're limited to the $200k policy limit. This is a great coverage extension, because if you are involved in a widespread catastrophe, building supplies and labor costs usually go up considerably for the area.
Sounds like Joe knows what he's talking about!!!
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