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Don't count on home insurance to cover your stashed cash

Shoving cash underneath your mattress or behind the popsicles in your freezer could result in the loss of hundreds or even thousands of dollars in the event of a fire or burglary at your home.

Stashing money at home is a strategy some Americans use, especially if they’re leery of financial institutions or want easy access to fast cash. But if the cash ends up stolen or is destroyed in a fire, tornado or another disaster, then there's not much hope of recovering the full amount from your home insurance company.

A typical homeowner’s policy covers up to $200 in cash lost in a fire, theft or any other peril, according to the Insurance Information Institute.

“A homeowner’s policy is not designed to cover money. That’s why you go to a bank. A bank is federally insured for that,” Drew Conley, an agent with Mill Creek Insurance in Ohio.

will homeowners insurance cover cash

The main reasons why insurers don’t pay out more in lost cash is because there’s no documentation the cash was there and there’s no way to prove the loss. Even if you take a video of the cash before it’s gone, who’s to say the money was in the house when a fire or theft happened, says Don Kemp, a financial representative at Espey Financial Group in Atlanta.

'Money is safest in the bank'

A few years ago, Connecticut resident and author Gail Karlitz had about $2,000 in a fireproof safe in her home. She had started stockpiling cash during the Y2K scare and liked how the easy access to money reduced her trips to the bank.

The safe, which was not bolted to the floor, was among the items taken by teenagers in her neighborhood who were seeking money to buy drugs.

“They took the safe, threw it over the back deck and pried it open. They just grabbed everything that was in the safe,” says Karlitz, whose books include “Growing Money: A Complete Investing Guide for Kids.”

Allstate, her insurer, covered only $200 of the roughly $2,000 in cash.

“At the time, I was upset that the amount covered was so low.Now that I think about it, the limit does make sense. I suppose someone could report any amount of cash, and it would be impossible to verify it,” Karlitz says. “I think ignorance of limits on cash coverage is probably more common than you think, and it’s a good thing to warn against.”

Now, Karlitz keeps a lot less cash in her house. But she’s certainly not the only one to have reported losing money stashed at home. A senior citizen in Watertown, Mass., told police in May 2011 that $8,000 in cash was stolen from her apartment; police were not able to track any missing money.

“Money is safest in the bank,” says Loretta Worters, vice president of the Insurance Information Institute.

Some of the reasons why folks stash cash at home include:

• They think it's safer than a bank.

• They're uncomfortable using a bank.

• They don’t have easy access to a bank.

• They're hiding money from the IRS.

Lack of trust feeds need to stash cash

The decision to keep cash at home reflects our economic times. Some people are watching their spending, but still would like quick access to cash in case they want to make a big purchase, according to Lynnette Khalfani-Cox, founder of the financial advice blog AskTheMoneyCoach.com.

will homeowners insurance cover cash

“It’s not like they’re going to put this money into the stock market, mutual funds or anyplace else where they might ... lose some of the money. They might have to pay surrender penalties or fees if they put it in a CD that’s supposed to stay in there for a year but have to withdraw the money early,” she says.

The bigger issue, Khalfani-Cox says, is a lack of trust of financial institutions. The Federal Deposit Insurance Corp. says about 30 million Americans don't have bank accounts or rely heavily on alternative financial services like check-cashing stores and pawnshops; other research puts that total as high as 70 million. Many of these folks are minorities with low to moderate incomes, Khalfani-Cox says.

“Certainly, many consumers feel that they’ve been burned, short-changed or penalized unfairly in one way or another by banks. And part of that is what’s driving this whole, ‘I’m just not even going to deal with the banks' behavior,’” Khalfani-Cox says.

Consumers need to be mindful of the potential for loss, however.

“If you are keeping cash at home as part of your overall strategy to essentially opt out of the financial system as a whole, I think that can be somewhat risky and you need to be aware of the pros and cons of doing so,” Khalfani-Cox says.

Extra coverage for cash

The $200 limit for cash is part of the standard comprehensive homeowner's policy – the ISO HO-3 for 2000, which is used by the majority of insurers. A homeowner's policy written on an American Association of Insurance Services form will provide slightly broader coverage, with a limit of $250 for cash, says Donna Popow, senior director of knowledge resources and ethics counsel for The Institutes, a nonprofit group for chartered property and casualty insurance underwriters.

You can buy higher coverage amounts for cash, coin collections and other valuable items through add-ons to your home insurance policy, often through something known as an endorsement.

Expect to pay about $20 to $25 a year to double the standard cash coverage, insurance agents say. More expensive policies for high-end homes cover larger amounts, such as a $2,000 limit for cash, says Kevin Foley, owner of New Jersey-based PFT&K Insurance Brokers. Agents say companies that offer higher cash limits include Chubb, whose representatives didn't reply to requests for information.

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