I have gotten some questions about insurance coverage for damaged/destroyed bicycles. It’s not a good idea to ask those questions only when your loss occurs; you should ask them when you can purchase coverage improvements if you decide to do that.
The purpose of this article is to point out two basic issues cyclists need to consider when purchasing homeowner’s (or renter’s) insurance. It is necessarily general; it does not tell you how to purchase homeowner’s/renter’s insurance, nor does it substitute for a detailed discussion with your insurance broker. But it does give you a starting point to have such a discussion.
To start with, there are two basic types of homeowner’s/renter’s insurance coverage. Some policies – “named peril” policies – cover1 only losses caused by perils that are specifically identified in the policy2. If your bike is damaged by an event that is not a “named peril” in your “named peril” homeowner’s insurance policy, the policy will not cover the cost of repairing the damage.
Here’s how a “named peril” policy works. Most “named peril” policies specifically say that “fire” and “theft” are covered. So, if your bike is caught in a house fire, or if it is stolen, the loss will likely be covered by the policy. But if you don’t see a pothole in time to avoid it and you fall into it and break the frame of your bike, that loss will probably not be covered. This, because road accidents are probably not covered under your policy.
The other basic type of insurance policy is known as an “all-risk” policy. This type of policy covers losses from all perils except those that are specifically identified in the policy as being excluded from coverage. So, if you have an “all-risk” policy and you fall into a pothole and break the frame of your bike, your insurance will apply to the costs of fixing or replacing your bike unless something in the policy excludes coverage from such pothole/road hazard risks.
Thus, “all-risk” policies cover more perils than “named peril” policies. Hence, and quite obviously, all else being equal, “all-risk” homeowner’s insurance policies are more expensive than “named peril” policies. You pays your money, and you takes your chances.
You also need to consider another significant homeowner’s/renter’s insurance policy feature. This is whether the policy pays damages (after the deductible) based on “actual cash value” or “replacement cost”. I will give you an example of how this works. In January, 2022 I was struck by a car while leading a Club bike ride. My bike frame was cracked, and Trek declared my bike to be a total loss.
My bike (rim brakes, wired Ultegra Di2) was 6 years old. New, it cost about $5500. My insurance policy had a $1000 deductible. For ease of calculation, let’s just assume that the bike had an expected service life of 18 years. If I had a policy that paid based on “actual cash value” I would have received an insurance check calculated something like this:
Cost of bike: $5500 Depreciation: age of bike 6 years / expected bike service life 18 years = 33% 33% x $5500 = $1833 Actual cash value of bike: $5500 - $1833 = $3667 Deductible under policy: $1000 Amount payable to me: $3667 - $1000 = $2667
I couldn’t have purchased much of a replacement bike for $2667!
But I had purchased a more expensive insurance policy, which covered “replacement cost”. As it happens, my bike is no longer made with rim brakes; it is supplied with more expensive disc brakes. And, the Ultegra Di2 is now a wireless system. So, while I had to pay the $1000 deductible out of my own pocket, my insurance paid the cost (less $1000) to replace my old bike with a new (improved) bike.
Thus, you need to know whether your homeowner’s/renter’s insurance policy is of the “named peril” or “all-risk” type, and whether it pays based on “actual cash value” or “replacement cost”. If you don’t know this, call your insurance broker.
