Do I really know what I own? By Jalene Hahn
Quick quiz
— do you know what model of TV you have? How about its serial number? How many shoes are in your closet and how much are they worth? What’s in your junk drawer? It’s hard to think of all the things you own and what they are worth. Now try to imagine doing that when you have experienced a disaster and are under stress. An inventory of all your personal property comes in handy for a number of reasons. The most common is recovering from some sort of loss. Other instances when an inventory is needed: • Financial planning and estate settlement. • Loss or damage from moving or storage. • Divorce and prenuptial agreements. • Sale, purchase or dissolution of a business or partnership. I recently attended a presentation by Cindy Hartman of Hartman Inventory about the importance of having a home inventory. “Having an insurance policy on your home and/or business personal property gives a false sense of security. We believe we will be taken care of in the event of the unexpected burglary, fire or natural disaster,” she said. “The truth is, if you can’t prove what you owned and when you bought it, you will in all likelihood fail to be adequately compensated for your loss. You need proof.” She indicated that people without a home inventory generally recover 30 percent to 50 percent of what they lost, and it may take as long as a year to settle a claim. Many people don’t know what personal property is and how much insurance coverage they should have. Hartman explained that to understand what personal property is, “Imagine taking off the roof of your house and tipping it upside down. Everything that falls out is personal property.”
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Personal property is insured separately from the structure of your house or apartment. There are two types of coverage: actual cash value and replacement value. So what’s the difference and why does it matter? Actual cash value is the amount it would take to repair or replace damage to a home and its contents after depreciation. In essence you don’t get much. The couch you purchased 10 years ago is now worth nothing. Remember that expensive TV you bought? If you have a loss after a few years, you won’t be able to replace it. Replacement cost is the amount it would take to replace or rebuild a home or repair damages with materials of similar kind and quality, without deducting for depreciation. With replacement cost you can purchase a comparable item. You can’t replace a 24-inch TV with a 52-inch HD plasma screen, but you will be back to where you were. An inventory will document how much coverage you need and if you need to add additional coverage for special items. Insurance policies place special limits on valuable personal property, such as jewelry, silverware, artwork, tools, special collections like stamps and coins, and firearms. If you own these items, check the limits in your policy. If they're not high enough, you may need to purchase a scheduled personal property endorsement. While you are reviewing your insurance coverage, find out if your policy covers additional living expenses for a temporary residence if you are unable to live in your home due to damage from a disaster. An additional item to check is if you have special coverage for situations not covered by standard insurance, such as earthquake, flood and water or sewer line breaks. As you prepare your inventory, add a bequest column. Let your children and grandchildren pick what they value. An inventory can also be beneficial when couples remarry later in life and combine households and children. — Jalene Hahn is a certified financial planner with Warren Ward and Associates.
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