What Is Personal Property Insurance

Personal property insurance, sometimes also referred to as contents insurance on your homeowners policy, covers items such as appliances and furniture in your home, as well as personal property such as clothing, cameras, watches etc. against loss or destruction.  When thinking about what would be covered, imagine trying to pick up your house in your hands and shaking it…whatever would move around would be covered.  If it would stay in place, such as cabinets, bathtub, etc, then it is not contents and would be considered part of your dwelling.

One of the biggest benefits of this type of policy is that If someone breaks into your home and e.g. steals your video camera, laptop or smartphone, your personal property insurance will help cover the loss.

An interesting aspect of this type of insurance is that it also protects your personal belongings outside of your home. So if your phone is stolen or destroyed outside (depending on the fine print of your particular policy) it might be covered.  The coverage is called off-premises theft.  If you have a deductible of $1,000 or more you are likely better off excluding off premises theft coverage.  In some cases it can save you 10% of your homeowners insurance premium.

Note: Although it is possible to get a standalone personal property insurance policy, the vast majority of people get their home contents and personal property insured as part of their homeowners insurance.

Replacement cost versus actual cash value

Most homeowners insurance policy will include replacement cost…but not always!  Make sure you ask your agent if replacement cost is included and not actual cash value.

Replacement cost coverage helps refund the owner for the actual replacement cost of the item in question, i.e. you should be able to buy another one of similar quality and type.

Actual cash value coverage typically only pays out the current cash value of the insured item. If your 10-year old TV, which is still in perfect working order, is stolen the insurance firm will only pay out a percentage of the price of a new one, based on the current cash value of your old TV.

Note: Keep in mind that the monthly premium for replacement cost coverage will usually be higher than for actual cash value coverage.

The types of damaged covered by personal property insurance

Not all policies cover the same types of damages, so it’s important to make sure at the start what you will be covered against. There are two main kinds of contents insurance policies: named peril and open peril. They determine what you are covered for, and what not.

Named peril policies. A typical HO-3 homewoners insurance policy bases coverage for personal belongings on a list of specifically named perils. That means you can only submit a claim if the personal possession or possessions in question have been destroyed by something from the list. 

Below are the most common types of perils included in such a policy: Theft, damage caused by vehicles, smoke damage, civil disturbances, riots, explosions, damage caused by planes, winds storms, damage caused by the weight of ice/snow/sleet, fire, lightning, volcanic eruption, falling objects, vandalism, water heater burning, tearing or cracking, water damage caused by heating/plumbing or air-conditioning overflow, pipe freezing, damage caused by an electrical current, 

 Open peril policies. This type of homeowners policy is considered to be a ‘premium’ policy and is also referred to as an HO-5. It covers your personal property against any kind of damage, provided the cause is not on the policy’s list of explicitly excluded items. The following are often excluded: Pressure from tree roots, floods, earthquakes, vermin, insects, pet and rodent damage, mold, natural wear and tear, corrosion.

For how much does your personal property insurance cover you?

Your personal belongings are typically covered under your homeowners policy’s Coverage C schedule. The amount is calculated as a percentage of your home coverage (Coverage A). Personal property is normally insured for between 30 percent and 70 percent of the structure of the home. Let us, for example, say your home itself is insured for $200,000, In that case your personal property coverage would typically be between $60,000 and $140,000. Not all homeowner policies allow you to modify the amount of contents coverage but if you can and you don’t need as much coverage as they are offering, you can consider reducing the coverage amount to save some money on your homeowners insurance premium.

Tip: Before you decide on the amount of personal property insurance you need, make a list of all your belongings and do a quick online search for their replacement values.

Deductible

Insurance companies normally apply a fixed deductible amount when you submit a claim. Sometimes they allow you to choose this deductible, e.g. $500 or $1,000 when you buy the policy. The lower the deductible, the higher the premium will normally be and vice versa.

Coverage limits

At this stage, it is important to note that most insurance policies have limits on specific high-value items such as jewelry, electronics, and fur coats. Even if you have personal property insurance for $140,000 and your wife’s $20,000 ring gets stolen, they might only pay out $2,500.   That is because there are certain items such as jewelry that have specific sub limits.  If you have expensive items such as jewelry, art or other collectables, talk to your local insurance agent so you can discuss proper coverage for these items.