Preparing For and Recovering on a Homeowner’s Insurance Claim

The coverage on your home should be sufficient to allow you to rebuild the home in the event of a disaster. Many experts recommend that your home be insured for at least 80 percent of your home’s replacement value, and that personal property be insured for 50-75 percent of your home’s coverage. 

Most insurers provide two different options for your insurance coverage: actual cash value coverage, or replacement cost coverage.

Actual cash value coverage provides the amount you would pay to replace your home or personal item at today’s cost, minus depreciation. Depreciation is the decrease in the value of an item due to wear and tear or age. Actual cash value coverage is less expensive than replacement cost coverage, but you will receive less money from the insurance company on any claim that you make.

Replacement cost coverage provides coverage up to the amount it would cost to replace your personal possessions or rebuild your home at the time it is damaged. This coverage allows you to make repairs or replacements using materials of similar kind and quality. 

Replacement cost coverage may exceed the market value of the home or personal property that is damaged or destroyed, since it may cost more to rebuild your home or replace the item now than it was worth at the time it was destroyed. Depreciation is not taken into account with replacement cofst coverage. However, this coverage is more expensive, and will require a higher insurance premium.

To ensure that you have sufficient coverage, and that you can make an effective claim and get the most return on your insurance premiums, it is a good idea to have an inventory of your personal possessions and their value. If you ever have to make a claim for personal property that has been damaged or destroyed, this inventory will help you to remember what to include in your claim, but will also provide backup documentation that will help to get the claim paid faster and more accurately. You may also want to photograph or videotape your home and possessions to further document what you own and their condition.

Retain receipts for large purchases such as furniture, appliances, electronics, jewelry, art and collectibles. If you have particularly valuable pieces, you may need additional or special riders or policies for these items. (See our post, What Does Your Homeowner’s Insurance Policy Cover?)

Keep your inventory list, receipts, photographs and video recordings of your personal possessions in a safe place so that it is available in the event of a disaster. At a minimum, these items should be kept in a fire-proof safe, but it would be even better to store them somewhere away from your home, such as in a bank safe deposit box. 

Insurance companies look at several factors in addition to the value of your home itself when determining the cost of your insurance policy. Some risk factors include:

- A home located in a higher crime area
- Exotic pets or “aggressive” dog breeds
- Bad credit
- Location in a flood zone, coastal area, area prone to hurricanes or sinkholes
- A trampoline, swimming pool, hot tub or outdoor spa on your property
- A home located far from a fire hydrant and/or fire station
- Poor home maintenance
- Multiple claims
- An older home, or a home with an older roof
- A wood-burning stove in your home
- Operating a home-based business

Any of these factors might increase your insurance premium, require you to provide the insurance company with additional documentation, or require purchase of separate or extended insurance coverage.

It is a good idea to review your homeowner’s coverage periodically to make sure you have adequate coverage and take steps in anticipation of a claim. If you do need to make a claim on your homeowner’s insurance or feel that your insurance company is not being fair with you in resolving a claim, find an experienced insurance lawyer by quickly posting a summary of your legal issue to our site.