Contents insurance is one of the more important investments you will make as a homeowner or as a renter. But do you have enough? A comprehensive policy covers your home against someone injuring themselves on your property. It also covers you for damages to the building, from perils such as a storm or vandalism. Your home policy also includes contents insurance, which is financial protection in case your belongings are lost of suffer damage. Whether you own your home or are renting, it’s important to remember that not all insurance policies are created equal. To get a better understanding of contents insurance, let’s examine what is covered, what may be excluded and how to ensure you have enough coverage for your valuables.
What is contents insurance?
Contents insurance covers the financial cost of replacing personal items that belong to you and your family. Your belongings are typically referred to as your “contents” on a home insurance policy. This includes everything in your home and on your property, including items in your garage and backyard shed. Contents insurance policies can differ somewhat, depending on your living arrangements and whether you own a detached home, a condo, a townhome or if you rent.
Most comprehensive home insurance policies include protection for your personal belongings and provide compensation for damages or losses because of named perils, such as vandalism, fire, theft and more. Broad or named perils policies cover you as well, but at lower limits. In short, they exist to pay you partial or full replacement costs (or if applicable, repair costs) of the items in your home that were damaged or lost.
All policies have a maximum limit. They also include sub limits for specific types of items, such as cash, antiques and jewelry. If you have high-value items, you can purchase a policy endorsement for added protection.
What does contents insurance cover?
Typically, a contents insurance policy covers your possessions up to a certain agreed-upon dollar amount. To know exactly how much coverage you need, you need to know how much you actually have. The most effective way to determine your needs is to go through your home, room by room, to determine the total value of your things. The amount of coverage your policy provides should allow you to replace all (or the majority) of the contents in your home.
Items that are typically included under contents insurance:
- Décor items
- Minor appliances
- Office supplies
- Bathroom essentials
TIP: Keeping an updated inventory of your belongings yearly will ensure you have the appropriate coverage. Special events, such as birthdays, anniversaries or even Black Friday splurges, will affect your inventory’s total value. This inventory will also act as proof of personal items during a claim and make it easier for you to provide information to your insurer. So, keep these records somewhere safe!
How to create a home content inventory:
- Photographs: Having hardcopy views of your valuables year over year will help you to track your possessions, in detail.
- No drawer unopened: Make sure to include the items you don’t normally see on a day to day basis, found in closets, cabinets, your garage or work shed.
- Keep a record: In combination with your photos, use a spreadsheet or log system to estimate the value of items in each room.
- Higher-value items: Identify items, such as electronics, a mountain bike or family heirlooms, with unique markings, such as an asterisk (*).
- Serial or model numbers: These should be captured and included in your log.
- Keep track of costs: This includes receipts or appraisals for any particularly high-value items.
Use a spreadsheet to add up the value of everything documented to give yourself a rough idea of how much coverage to buy. With most policies, your limit will be about 70% of your total building coverage amount. Check with your isure representative to verify your limits.
What is a “contents limit”?
Your contents limit is the maximum amount that your insurance company will pay out in the event they have to reimburse you as a result of a claim. Note that your insurance may have a maximum amount they cover for specific items and you may need to purchase additional coverage via special endorsements.
Factors that may affect the cost of contents insurance
The price of contents insurance is determined by the items you insure. A good rule of thumb is $1 for every $1,000 worth of valuables you’re insuring. The average price of tenant insurance is $15/month. The average price for home insurance is about $120/month, depending on the location and risk. Both of these policies include contents coverage, however, each insurance company may calculate this limit slightly differently. It usually tends to represent approximately 30% of the cost to rebuild your home.
There are many factors that can impact your contents insurance rates, including:
- Type of plan i.e. Comprehensive or named perils
- Plan limits
- Replacement cost or actual cash value
- Your deductible
- Adding extra coverage for high-value items i.e. endorsements
For a breakdown of home insurance policies, please read our article, What is home insurance and why do I need it? for more information.
Perils, exclusions and scheduling endorsements
What is a peril?
Contents insurance policies cover a wide variety of potential “perils” or “risks” that could impact your belongings. Damages or loss due to fires, smoke, water damage, theft, vandalism, windstorms or hailstorms are just a few of the risks that are claimed each year. Depending on where you live, you may choose to add an “endorsement” (additional coverage) to your policy that protects your contents from less common risks, such as earthquakes or “overland” flooding. These events are rarer, therefore, they aren’t included with most contents insurance policies.
What are exclusions?
It is vital to read your policy and understand any exclusions that may exist. If you’re the victim of vandalism and theft, most policies will reimburse you for any damage. With your contents insurance, you will be able to replace these valuables. However, there are limits to how much your insurance provider will give you. Knowing what perils you’re protected against or which items are not covered by a home policy is important. A standard home contents insurance policy will cover your appliances if they are damaged or destroyed in a fire, storm, flood, other natural disasters or if they’re stolen. But it won’t cover these kitchen essentials if they break down due to age, wear-and-tear or are accidentally damaged. To protect your home against excluded perils (such as sewer-backup and floods,) you may be able to purchase optional coverage.
Generally, exclusions under the contents section of your home policy include things like glassware, china, collectibles, antiques or fine arts. Still, you can always insure these items by “scheduling” them with your home insurance provider. Scheduling means you’re listing a specific item for a predetermined amount of money, and they’ll tell you how much it will add to your premium. This is also known as an “endorsement” or add-on to your home policy.
Why do you need extra coverage with contents insurance?
Contents insurance covers loss or damage to the personal belongings you keep in your home, however, comprehensive policies limit the amount your insurance company will pay out for specific items that are lost, stolen or damaged. There are special cases where belongings may need a little extra coverage, and that’s where an added endorsement for contents insurance comes into play. On your policy, there may be some items with special limits, meaning they are covered, but maybe not to the full extent of their value. This includes items such as bicycles, watercraft, jewelry and watches or silverware. Again, you can buy extra insurance for these, either with your primary insurer or a third-party insurer.
Remember to contact your insurance provider to see what they cover and what their limits are per item. If you find you need more contents insurance or to add an endorsement, speak with an isure broker to help you find a provider more suitable for your needs.
Actual Cash Value (ACV) insurance vs. replacement cost insurance
The type of contents policy you have can significantly impact how you are compensated for a loss. You will need to figure out which type of contents insurance you want: Actual cash value (ACV) or replacement cost:
Replacement cost insurance gives you money to replace the lost or damaged items equal to the amount you’d need to replace it with a new or similar product. It is a more expensive policy, but you will receive more money to replace your item with something comparable to what you had.
Actual Cash Value (ACV) insurance, however, takes into consideration the replacement cost but also the depreciation:
ACV = Replacement cost – Depreciation
The downside to ACV insurance is that you may have to put in some of your own money to replace items, as the value can depreciate over time. But your premiums will be lower.
Contents insurance for renters
The premium for contents insurance will vary based on your type of policy. If you rent, your contents insurance is included as part of your tenant’s insurance. Since you don’t own any part of the structure, a renter’s contents insurance policy is strictly to protect the possessions you’ve brought into the space, whether that’s a unit in an apartment building or an entire house. For tenants, contents insurance and their limits are more defined. Utilizing the same home inventory for your valuables (listed above) will help your insurance company to determine how much contents insurance you need.
Contents insurance for condominium owners
Contents insurance for condo owners can pose some confusion. While the condo corporation that owns your building has insurance, this protects only the primary structure and the building’s common areas, such as the lobby and gym. Since you’re the owner of your portion of the building (your suite), you’re responsible for everything within it. This means not only your possessions, but any improvements you may have made, such as upgraded flooring or appliances. Be sure to discuss any upgrades or renovations you make to your unit with your isure broker to update your coverage. In case of a fire or damages due to water in your suite or a neighbour’s, you want to make sure that your reimbursement reflects your investment.
Whether you rent or own, you have a lot of personal possessions that need protection. Your clothing, furniture, electronics; it all adds up. A contents insurance policy ensures you have added protection if your things happen to be stolen, damaged or vandalized. Make sure you have the right coverage and speak with one of our isure representatives today to help you protect the possessions you cherish.