‘Tis the Season to Protect Gifts

If you’re giving and getting gifts this holiday season, think about protecting the gifts. Americans spend handsomely during the holidays. The U.S. Department of Commerce estimated that U.S. retail sales for the fourth quarter of 2007 were more than $1 trillion.

Trusted Choice® insurance professionals suggest you to take stock of what you own – and how it’s insured – soon after you finish unwrapping the Christmas gifts.

Most consumers protect what they own with homeowners or renters insurance. Homeowners insurance covers personal property for a percentage of the insured value of the home. For instance, a $300,000 home might have its possessions insured for 50 percent of that amount. While $150,000 might seem like a large number, the value of clothing, electronics, furniture and kitchen appliances in the home adds up. Homeowners coverage will reimburse a consumer if those items are damaged by fire or stolen.

Around the holidays, the value of what you own can change quickly. Rest assured that, when someone in the family gets new electronic equipment or jewelry for Christmas, those items are automatically insured by homeowners or renters coverage. But that coverage might be limited, so it’s timely to check your insurance now.

There are two limitations on coverage for possessions: 1) amount of coverage and 2) risks covered.

Amount of Coverage

Homeowners insurance may cover personal property for actual cash value and not replacement cost, depending on the policy. For example, a piano purchased five years ago has declined in value due to wear and age -- this is known as “depreciation.” Your insurance contract may reimburse the actual cash value (original cost, minus depreciation) of the piano, and not for the price of a new piano to replace the one that was damaged in a fire.

By contrast, replacement-cost coverage is based on the amount it costs to buy a new piano. Replacement-cost coverage costs about 10 percent more, notes the Insurance Information Institute.

Additionally, many homeowners policies put a dollar-amount cap on certain categories of property. So even if you have a large amount of personal property coverage on your homeowners policy, you might have a “sub-limit” of $2,000 for jewelry. In that case, a new pair of diamond earrings, combined with an engagement ring, might push the value of the jewelry above the limit. (Even replacement-cost policies have sub-limits for certain types of property such as furs and jewelry.)

Deductibles on homeowners policies reduce the amount of any claim check. Deductibles are a way that the homeowner shares the risk of loss with the insurance company.

Risks Covered

Homeowners policies provide coverage for, at a minimum, loss or damage of property due to fire, lightning, and windstorm as well as theft and vandalism. Depending on the policy, additional risks such as water damage may be covered.

However, for personal property, some typical risks might not be covered. For example, if a toddler picks up a diamond ring off the bathroom counter and flushes it down the toilet, that loss likely is not insured.

Valuables Coverage: Who Needs It?

To provide additional amounts of coverage and to insure against additional risks (including breakage and accidental damage), many consumers should consider “valuables” coverage. Sold as an add-on to a homeowners or renters policy, this coverage is sometimes called a “valuable articles floater” or a “valuables rider.”

Valuables coverage is suitable for expensive items such as jewelry, furs, art, antiques, fine furniture, and fine rugs. Valuables coverage either gives you a) a “schedule” or list of individually-listed items covered, or b) coverage for categories such as jewelry, fine arts, etc. Scheduled items typically need to be appraised by a third-party appraiser, or have their purchase price documented.

One consideration in buying valuables insurance is whether you need to protect the financial value of the items, and not merely the sentimental value. Another criteria: if the item is likely to appreciate in value, check out valuables coverage.

A valuables policy or rider typically provides all-risks coverage for the items listed on it.

If you’re a collector of items such as collections of dolls, dollhouses, and trains, a different type of policy might be appropriate: Collectibles insurance. Available on a stand-alone basis, collectibles coverage provides a few thousand dollars of coverage for a small premium. Homeowners or renters coverage might pay only a small reimbursement if these items are stolen or damaged. Collectibles coverage also protects against more risks than homeowners coverage.

Insurance is the last line of defense against financial loss, though. There are two vital ways to protect your property, especially as you add to it during the holidays:

• Keep an updated inventory of what you own. A written record of the cost, date/place of purchase, and description of your possessions is invaluable in knowing what you own. It’s easier and faster to get claim payments when you can document what you lost. Homeowners insurers and consumer software offer home inventory spreadsheets, including some that allow you to keep photos and receipts. Give a copy of the inventory with your Trusted Choice insurance agent or broker, and keep a copy outside your home.
• Protect your property. A secure home, with especially valuable items kept in locked cabinets and/or fireproof boxes, is the best way to deter the thefts that cause so much financial loss.

Your Trusted Choice® insurance professional can guide you as to which type of coverage you need for what you own. The holiday season is a good time to ask him or her about what you own and how it’s insured.