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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)


Keeping Homeowners Insurance Current
Isn't a Job Just for Home Owners


Renters and Students Are Vulnerable, Too
For most people, a home and its contents are their most valuable assets. To protect them, it’s important to be sure you have sufficient homeowners insurance. "Even if you're not the homeowner, you still need to think about insurance," says George E. Williams, CPA, of Dorfman Abrams Music, LLC in Fair Lawn.

"There's a big hole for some people," Williams says. "Homeowners insurance is required when you have a mortgage. If you are a renter, your losses could be just as devastating, but no one is compelling you to protect yourself."

According to the New Jersey Society of Certified Public Accountants (NJSCPA), whether you are a homeowner or a renter, if it’s been a while since you’ve assessed your insurance needs, it may be time to reexamine your coverage. That’s particularly true if real estate values have risen in your area, if you’ve made major home improvements or if other circumstances have changed significantly.

Review Your Policy
Unfortunately, when a disaster occurs, homeowners often find that their insurance coverage isn’t adequate to cover all their costs. To ensure that doesn’t happen, review your policy when it comes up for renewal after a major addition or renovation, or when you’ve installed a new burglar or fire alarm system. You should also do so after a life change, such as marriage or divorce, when the contents of your home may change. If you have children who are attending school and living in dormitories, you can check your policy options. Some homeowners policies will cover their personal belongings.

If you have domestic employees, you may also find some unexpected assistance in your home insurance. "Some homeowners policies provide optional workman's compensation coverage," says J. Russell Jefferson, CPA, of Laurel Springs.

And if you are a renter and you're not insured — look into a renter’s insurance policy. Typically, renters insurance is fairly inexpensive.

Picking the Policy
CPAs recommend that you consider what kind of repayment you want to receive for damages. A cost-value policy will reimburse you for the price you paid for an item. However, the insurance company will depreciate that price based on the age and condition of the item, which means you’ll likely receive less than you need to buy a new replacement. Replacement cost coverage is more expensive than a cost-value policy, but it will provide you with the amount you need for repairs or replacement. A guaranteed or extended replacement cost policy pays whatever is necessary to rebuild a home as it was before a disaster, even if that amount is more than the policy limit. Insurance companies may place limitations on any policy, so find out precisely what your policy promises. Remember, too, that if you live in a flood zone or in an area subject to frequent hurricanes, it may cost more to cover these potential catastrophes.

Create an Inventory
If disaster strikes, it’s helpful to have both written and photographic inventories of the contents of your home that you can use to verify your insurance claims. They should include all home contents — furniture, electronics, artwork and collectibles — along with estimated replacement values. Ask the insurance company if you need a separate rider for valuables such as jewelry, art, antiques and computers.

Be sure, too, that the company is aware of new additions or renovations to your home, which may expand the square footage that must be covered or raise the value of the property. In your policy review, make sure that it reflects overall changes in real estate values in your area. The same is true of any possessions whose value may have increased since they were first insured. You may need to call in an appraiser to determine the current worth for your home or its contents in order to change your policy.

To speed the process after a disaster, make sure your policy, insurance company contact information and the written and photographic inventory of the contents of your home are readily available. It’s best to keep them in a secure spot away from your home, such as a safe deposit box or with a relative who lives nearby.

Shop Wisely
Don’t hesitate to shop around for the best rates. While adequate insurance is important, you may be able to find a better deal for the same amount of coverage. However, check that the insurer you’re considering has been given good ratings by ratings agencies such as A.M. Best or Standard & Poor’s or by a consumer watchdog such as Consumer Reports.

Choosing the best policy and ensuring you have the proper coverage can be complicated. Your CPA can advise you on many personal finance decisions, including getting the right coverage for your home.

If you would like to receive more information on various financial matters, subscribe to E-CPA, the NJSCPA's free, monthly email newsletter. To subscribe, visit www.njscpa.org/finances or email a subscription request to e-cpa@njscpa.org.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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