Burglary Worries? Choose the Right Home Insurance Policy

Dear New Frugal You,

Over the holidays, my next door neighbor was robbed. They took all the Christmas presents and a bunch of other stuff. No one was hurt, but now I wonder if I have the right insurance on my house in case the same thing happens to me. How can I protect myself?

- Crime Alerted

Dear Alerted,

You're right to be concerned. According to the FBI, there were nearly 2.2 million burglaries in 2009 (the most recent year reported). Your chances of being victimized are only about one in 140. But, as your neighbor found out, it can be a devastating loss if you happen to be that one.

So let's see what we can do to prevent you from being a robbery victim.

First, we'll look at how to prevent burglaries. Then we'll answer your question about insurance. For help in preventing robberies, we turned to the Memphis Police Department's website. Among the tips were to make your home look occupied, securely lock all outside doors and windows, keep valuables (such as lawn mowers, bicycles, etc) out of sight to avoid tempting thieves, trim trees/bushes near doors and windows, light the perimeter of your home at night and install an alarm system. The common thread is to avoid looking like an easy target. In one way, bad guys are like the rest of us. They want to make work easy. So your job is to make your house look like a hard one to rob, and hope the bad guys will move on to an easier target. Next, let's figure out whether you have enough (and the right) insurance on your home to cover a break-in. The first thing to consider is how much coverage you want to buy. The average loss due to a burglary was about $2,100. But remember that the average is just that -- an average. One big-screen TV could put you over that. The best way to figure out how much coverage you need is to do a ballpark inventory of your possessions and their value. You'll be surprised how quickly the dollars add up. You may have done an inventory in the past, but if it's been a few years, it's time to do it again. Most families buy a few new possessions each year, and the value of some items will change, too. Then call your insurance agent and ask about "replacement cost coverage." That big-screen TV might have cost $4,000 new, but it's only worth $500 today. The insuror will pay you what your stuff is worth today as used goods if you don't have replacement cost coverage. Consider how tough it might be to replace all your stuff with used items before you make a decision on replacement cost coverage. Also ask your agent about limitations. Your policy covers typical household possessions. But if you have a collection that is valuable, any valuable jewelry or other unusual property, you'll probably need a special addition to your policy called a rider. The agent loves selling riders, so they'll be happy to explain what's not covered without one and how much it would cost to add one to your policy. Find out how much your deductible is. Just as with your auto policy, you need to have a loss above a minimum amount to collect from your insurance. Be ready to cover that deductible amount on your own, ideally from savings. Usually you want to sign up for the largest deductible you can afford, unless for some reason you expect a lot of small losses. Check on any special discounts that might apply. Smoke detectors, alarm systems, new roofs and other home upgrades could reduce your premium. Finally, go back to that inventory. Take a video of all the valuable possessions and put a copy in a safe place. Insurance companies don't like to pay for an item just because you said that you had one and it was stolen. A video is proof that your inventory is accurate. While you're recording, talk about the value of each item and why it's valuable so that it's on the video. Mention any special features or upgrades. A folder with copies of receipts is also a good idea. Both will help provide evidence of what was stolen. Alerted, you are wise to be concerned. Like so many things in life, it's easier to handle them before the crisis occurs. So let's hope that you do what's necessary today, but never have a reason to look to your insurance to replace stolen items.