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Make Sure Expensive Gifts Are Insured

Your homeowners policy might not provide enough coverage for certain valuable items.

Did Santa leave a pair of diamond earrings under the Christmas tree? If you received a gift of this sort, you might be feeling lucky. But you need to make sure that your new expensive item -- whether it's jewelry, a watch, a fur coat or even sports equipment -- is protected in case something happens to it.

In the event of a fire or other disaster that destroys your belongings, most homeowners policies will provide coverage for possessions at 50% to 70% of the dwelling’s coverage. So if your home is insured for $200,000, you’ll have $100,000 to $140,000 of coverage for your belongings. However, theft is a different story. Most policies limit your coverage for theft of certain items, such as jewelry, to $1,000 to $2,000, according to the Insurance Information Institute (III).

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You can increase your coverage, though. You can raise your liability limit with an endorsement to your existing policy, or you can purchase a "floater," or personal articles policy, to cover a specific item. It is often cheaper to endorse an existing policy, says Bill Wilson, associate vice president of education and research for the Independent Insurance Agents & Brokers of America.

But purchasing a floater to schedule a specific item will offer broader protection because it will cover losses of any type, according to III. It can be used to insure individual items up to a specific amount or an entire collection on a blanket basis. Items that can be covered include jewelry, furs, cameras, musical instruments, silverware, fine art, collectibles, sports equipment and computer equipment. The cost will vary depending on where you live and the coverage you want. Typically, you'll pay several dollars for coverage that amounts to several thousands of dollars, according to State Farm.

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To determine which is the better way to go, start by looking at the "Property Not Covered" and "Special Limits of Liability" sections in your homeowners policy to find out whether your new expensive item is covered. Then you should take these steps recommended by III:

-- Let your insurer know that you might need additional coverage to protect your new items.

-- Ask if you have a replacement cost or actual cash value policy. A replacement cost policy pays to replace items at their current market value, while an actual cash value policy pays to replace items at their value minus depreciation. For this reason, replacement cost coverage is about 10% more than actual cash value, but III says that it's a better value in the long run.

-- Send a copy of the receipt for your item to your insurance company so it knows the current value. Keep your receipt in your home inventory file. If you don't have a receipt, you'll need to have the item appraised.

-- Photograph or video the item and add it to your home inventory. If something happens to the items, a visual record will help document the loss and speed up the claims process. If you don't have a home inventory, start putting one together now. The Insurance Information Institute’s free Know Your Stuff software can help you create a home inventory.

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