This can be a difficult question to answer. After all, most people do not purchase all their belongings at once. We acquire them over time, some new, some second hand. It can seem like an impossible task to come up with how much you have spent on your “stuff”.
When figuring out the amount of insurance that you need – ask yourself the question, “If I needed to buy everything brand new, what would it cost?” Most renter’s insurance policies are based on “replacement cost.” Replacement cost means the amount that it would take to purchase what you had with brand new items.
Many people fall into the trap of thinking, “But my things are old; they are not worth that much.” That may be true, but when it comes to insurance ask the question: "What would it cost if you needed to go on a shopping spree and buy everything brand new?" When thinking of this, remember that most policies will allow you to purchase the same kind and quality as what you had. So, if that old couch is very well made you would be able to purchase the same quality of couch in the event of a claim.
Many insurance companies have a minimum amount of contents insurance that they will provide, for example, $30,000 is quite common. Would that amount be enough? It is a good starting point, but everyone has a unique set of belongings and everyone has a different set of needs.
One tool that is available is a record of your belongings. This can be found on SGI's website. While it is not strictly necessary to complete a record like this, it is a valuable tool in determining how much insurance you need.
2. What Kind of Insurance Do I Need?
Once you have determined how much insurance you require, the next question to ask is what kind of insurance best meets your needs. There are essentially two different types of contents insurance: a more basic form of insurance and more comprehensive insurance.
Named Perils Insurance
The first form of insurance is named perils. It has different names depending on the insurance company. It may be called Pak I or Broad Form. Each company has a different name. So please do not rely on the name, make sure that you understand what it actually provides.
As the name implies, “Named Perils” provides insurance for a specific number of perils. A peril is an event that is unexpected and accidental.
Common named perils would include:FireLightningExplosionSmokeFalling ObjectImpact of Aircraft, Spacecraft of Land VehicleWind/HailWater EscapeVandalismTheft