Home contents insurance: Understanding the threshold amount

As a licensed insurance producer, I often get asked the question: What is contents coverage and how much do I need?

The easiest way to describe content coverage is if you turn your house upsidedown and shake it, everything that would fall out is considered contents or personal belongings….ie: furniture, appliances, clothing, bedding, electronics, dishes, silverware, etc. Home contents coverage also includes items like: lawn mowers, above-ground swimming pools, trampolines, etc.

There are two types of home contents coverage. One, is automatically included in a home owner’s package and is usually 50 – 70% of the total dwelling coverage.

For instance, you have $100,000 of coverage on your dwelling (structure, home) then your content coverage is automatically $50,000. If you have “replacement cost” on your contents then that coverage is increased up to 70% ($70,000) depending on the package. If that is still not enough, some companies will allow you to write content coverage equal to but not more than the dwelling or structure amount – in this case $100,000.

The other type of home contents coverage is commonly known as renters insurance. This is coverage that will protect your belongings in the home or apartment you rent. Many times it also provides liability coverage which comes into play if someone gets hurt while visiting you and sues or if you or your children damage the landlord’s property and he sues you.

For the purpose of this article, we’re going to discuss Contents Only (renters) insurance.

Many folks mistakenly believe that their personal belongings are covered under the landlord’s dwelling insurance but this is far from the truth. Others, especially young people, think they don’t have a lot of stuff, so they shouldn’t worry. This too, is not wise.

When taking into consideration the amount of contents coverage my customers need I use the rule of thumb of a minimum of $1000 per room. I also encourage them to consider worst case scenario – total loss.

If your home or apartment were destroyed due to a fire, how much would it take to replace ALL of your belongings? How much would it take to start over somewhere else?

Remember, the expense to start over also includes, rental deposits (usually first and last month’s rent + a security deposit) and utility deposits or transfer fees in addition to replacing your stuff.

One-thousand-dollars per room may not sound like much, but should cover the bare basics should you find yourself in the position of starting over after a total loss. In most cases it is wise to double that when purchasing home contents insurance.