Homeowners Insurance Formula for Estimating Personal Property Value

According to Consumers' Checkbook, an unbiased consumer rating and information service partially funded by the U.S. Office of Consumer Affairs, home insurers limit coverage of personal property to 50 or 75 percent of the dollar value of your dwelling coverage. If you have $200,000 in dwelling coverage, the homeowners policy caps your personal property coverage at $100,000 or $150,000, respectively. Homeowner policies pay out claims for personal property on the basis of actual cash value or replacement cost. Actual cash value reimburses you on the cost of your property based on its used condition, while replacement cost policies repay you the dollar amount needed to purchase the item new.

Cover the Contents

Homeowner insurance policies cover your personal property as "the contents" of your dwelling. The policy insures your personal possessions, such as furniture, appliances, jewelry, clothing and more, even if the items are not in your home. Typically, homeowners coverage insures all your possessions unless specifically excluded. The normal exclusions include pets, vehicles such as cars and airplanes, and car stereos. Check the fine print of your policy for any other exclusion.

Determine Actual Value

Once you inventory your personal property, you need to determine its actual value. Actual value factors in the wear and tear that causes a used item to depreciate or lose value over time. To calculate the actual cash value, or ACV, of an item, take the replacement cash value, or RCV, which is the cost to purchase the item now, and multiply it by the depreciation rate, or DPR, as a percentage, and the age of the item. Then, subtract that value from the RCV. ACV=RCV - (RCV*DPR*AGE). For example, a three-year-old dishwasher that costs $500 (ACV) to replace and has a depreciation rate of 12.5 percent (DPR), or .125, has an actual cash value of $312.50 {500-[500*(.125)*3]=312.50}.

Check Replacement Value

If you want more than the actual cash value, you need to add an endorsement or special option to your policy. With this provision, the insurer reimburses you the value to replace the item less the deductible. The deductible is the amount you pay before the company pays a claim on the remainder of the loss. So in the previous example, you receive $500 minus the deductible to buy a new dishwasher.

Pay More

This benefit of replacement value usually adds about 10 to 15 percent to the cost of your premium, but may come with no cost on some policies. If you have lots of recently purchased items, this may make sense. Otherwise, the cost of the higher premium may outweigh the benefit of the endorsement. Also, if you choose replacement value, the insurer may not go above a 70 percent coverage limit for your personal property, according to Consumers' Checkbook.

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About the Author

Chris Brantley began writing professionally for a financial analysis firm in 1997. From 2000 to 2004, he worked as a financial advisor, specializing in retirement planning and earned his Series 7, Series 66 and insurance licenses. Brantley started his full-time writing career in 2012 and has written for a variety of financial websites, including insurance, real estate, loan and investment sites. He holds a Bachelor of Arts in English from the University of Georgia.

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