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Zapped: Insurance for your irreplaceable computer files

Take a quick look through your C drive on your home computer. How much of your life is stored on it?

If you're like a lot of people, you have files and folders for family photographs, genealogy records, address lists, and family financial and medical records. You might have also stored your master's thesis, your children's homework projects or the great American novel you’re laboring over.

computer problemsBut if your computer files are not properly backed up, it could all vanish in an instant. Would your home insurance policy cover the devastating loss? The answer is: Maybe.

Home insurance for computer problems

Insurance for electronic data is not a sure thing on home insurance policies. That's because data is not always considered "tangible" property, according to Claire Wilkinson of the Insurance Information Institute (III). An insurer might define property damage as "physical injury to tangible property," and the gigabytes that make up your family's vacation photos don't count.

"With the integration of computers, BlackBerrys and iPhones into virtually every aspect of our lives, questions surrounding insurance coverage involving these devices and the data they process have moved to the forefront of insurance law," write Boston attorneys John N. Love and Ann F. Ketchen, both with Robins, Kaplan, Miller & Ciresi LLP, in a recent paper for the Defense Research Institute titled "Emerging Law on Electronic Data Insurance."

The insurance industry has developed language for coverage of data that has been lost due to specific events like fires, theft or flood, commonly called "perils." Often a home insurance policy will only cover the loss of physical pieces related to the data, such as drives, discs or other processing media. But the courts don't always agree with the insurers, Love and Ketchen found in recent legal cases.

"Most courts continue to find coverage for loss of electronic data even if a property policy has not expressly afforded it," their report says. But the cases reviewed by Love and Ketchen involve business insurance. What about your home insurance policy? The best bet is to check with your insurer.

Even if home insurance coverage is available, electronic gems like family photos can’t be replaced no matter how much insurance compensation is available.

For example, USAA offers a personal protection rider to its homeowners policy that can be purchased for as little as $8 a year for $3,000 worth of coverage. (Rates will vary by state and coverage amounts.) But that rider covers only the physical damage or loss of the home computer, its drives and its operating software, and it must be caused by specific perils like theft or fire. The computer files on those drives are not covered, according to USAA.

The Hartford offers some coverage on its standard home, renters and condo policies, says Carin Stepeck, vice president at The Hartford. A homeowner's policy has $1,500 in coverage for computer files such as "securities, accounts, deeds, manuscripts and personal records," which also includes costs relating to research, replacement or restoration of these files. “A manuscript” can be a term paper, genealogy notes or memoirs, Stepeck says. You can also buy higher limits of coverage for an additional cost.

"An additional coverage option would be a computer endorsement," Stepeck says. "This is about $15 per year and offers coverage for 'open' perils rather than the 'named' perils listed on the standard policy. One of the most beneficial open perils in this instance is accidental damage from power surges."

Other home insurance companies may offer similar coverage through a rider, or as part of a standard home insurance policy.

Ultimately, you’re best off avoiding a claim in the first place: "Off-site storage or back-up to discs or removable drives that can be stored in a secure location is the best way to protect [files]," Stepeck says.

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