Homeowners insurance provides homeowners with coverage for the loss of the home and personal belongings, as well as liability protection. Many mortgage lenders require proof that homeowners insurance has been secured before the closing because it protects the lender's investment.

Homeowners insurance covers personal property such as furniture, appliances, clothes, and sports equipment if it is stolen or destroyed by an insured disaster or peril. The coverage provided generally ranges from 50% to 70% of the amount of insurance coverage you have on the structure of your home. Also included is off-premises coverage. Off-premises coverage insures the value of your belongings anywhere in the world, but usually with a limit of 10% of the amount of insurance you have for your personal possessions. Business property is usually limited to $2,500 if kept at home, and $500 if away from the home. Other limits include $200 for cash and $1,500 for securities. Most policies cover a limited amount of unauthorized use of credit cards. Lastly, most homeowners insurance limits coverage to $1,000 to $2,500 for expensive items, such as jewelry, silverware, guns or furs that are destroyed or stolen. A special personal property endorsement might be required to insure the fully appraised value of such items. Personal property endorsements often include insurance against accidental loss as well.

A homeowners insurance policy pays out for losses of personal belongings using one of two methods: replacement cost coverage or actual cash value coverage. Replacement cost coverage does not take into account depreciation and pays the dollar amount required to replace the damaged items. On the other hand, actual cash value coverage takes into account depreciation and pays the cash value with depreciation subtracted for items damaged.

If a fire destroyed your home, it is unlikely that you will be able to remember such things as every article of clothing, every piece of furniture, or the make and model of each appliance. This is why it is so important to take an inventory of your personal belongings.

Start by listing and describing all of your belongings. Attach any sales receipts or appraisals you have. Clothing should be divided and counted by categories. For example, ten pairs of pants, sixteen shirts, eight pairs of shoes, etc. Make a special note about particularly expensive clothes. Also, take photographs of all of your rooms and the items in them. Note on the back of each photograph the value, make and model, and/or where you bought it. You also can videotape your possessions. Be sure to store your inventory list, photographs, and videos at a friend's or family member's house or safe deposit box. Remember to update your list when you make a significant purchase. There are software packages to help you and even services available if you would rather not do the inventory yourself.

The Henssler Financial Group recommends that you take the time to look over your homeowners insurance policy and understand exactly which of your personal belongings are insured. Review your policy to make sure that your expensive items are indeed covered. If they are not covered, purchase an endorsement. We also recommend that you do not delay compiling a home inventory.

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