What is personal property insurance?
What Is Personal Property Insurance?
Homeowners insurance doesn't just cover the exterior of your home, it also covers your personal belongings. In the event of a covered peril, like fire, theft or extreme weather, your personal property insurance will reimburse you to repair or replace lost items.
Personal property coverage is included in your home insurance policy. It's also included with renters insurance and condo insurance. Personal property coverage protects your personal belongings inside and outside of your home from the covered perils stated in your insurance policy. Everything that you or a family member personally owns is covered—furniture, clothing, appliances, electronics and so on.
Like all types of insurance, your personal property coverage has a policy limit and a deductible. The policy limit is the highest amount of money that the insurance company will reimburse you after a covered loss. Your deductible is the amount of money you have to pay towards the loss before insurance money kicks in.
According to the Insurance Information Institute, your personal property coverage is usually between 50-70% of your dwelling insurance. Your deductible is customizable, but most homeowners have a $500 or $1,000 deductible. If you raise your deductible beyond $1,000, you may qualify for a lower annual premium.
What Does Personal Property Insurance Cover?
Personal property insurance covers your personal belongings. It covers items inside your home, outside in your backyard, in your garage, in your car, in a hotel room or even in your work office. Your personal belongings are covered from the perils listed in your insurance policy, like fire, wind damage, lightning, hail, falling objects, theft, vandalism and more.
Here are some common items covered by personal property insurance:
- Garage tools
- Sporting equipment
Your personal items will be covered almost anywhere. But the coverage limit for items that are off-premise might be different from items that are on-premise (i.e. things in your house). The Insurance Information Institute states that some companies could lower the off-premise coverage limit to 10% of your total personal property policy limit. Check with your provider to determine your specific coverage limits for off-premise items.
Personal Property Coverage for Valuables
Your personal property insurance will cover valuables in your home, including:
- Coins and money
- Business property
However, because these items tend to be expensive, they usually have their own coverage limits. For example, your insurance policy might only cover jewelry up to $2,000. In this case, if you had a jewelry collection worth $10,000 that was destroyed in a fire, insurance money would still only cover $2,000, even if your total personal property coverage limit was $50,000.
If you own expensive items and want to raise your coverage limit, consider purchasing an endorsement specifically designed to cover valuables. Many insurance companies will boost your coverage limit for items like jewelry for an additional cost.
You can also explore getting a personal articles floater or a scheduled property endorsement that will increase your coverage. For these policies, you can designate which valuables you want added coverage for based on their appraised value. Scheduled property endorsements can be very expensive, but you generally don't need to pay a deductible if you need to file a claim.
How Much Personal Property Coverage Do I Need?
The best way to determine how much personal property coverage you need is to create a home inventory. A home inventory is a log of every item in your home, from clothing to the items in your garage.
Creating a home inventory can be time consuming and tedious, so work room-by-room to keep yourself organized. To start, write down all your items, including where you bought it, how much it costs and the make and model. Clothing can generally be counted by category (scarves, shirts, pants, etc.). You can take photos of larger items and include the serial number for things like appliances.
Once you have everything accounted for and their original estimated prices listed, calculate the total value of your items. Use that number to determine how much personal property insurance coverage you should get. You should choose a coverage limit that will cover all of your items in full. However, that should exclude valuables, which will likely need to be covered by a separate policy.
How Much Does Personal Property Insurance Cost?
The average cost of personal property insurance depends on a number of factors. It's not a standard rate for every homeowner. It's based on where you live, what insurance provider you have, the value of your items, your coverage limits and your deductible. The cost will also increase if you purchase endorsement coverages or add-on policies.
Another thing that will impact the cost of your personal property insurance is whether your policy is based on actual cash value (ACV) or replacement cost value (RCV). ACV and RCV are the two ways that your insurance company will reimburse you after a covered loss. With an ACV policy, the insurance company factors in depreciation before calculating your payout. RCV doesn't factor in depreciation, so you'll be reimbursed the same amount you originally paid for an item.
Typically, homeowners insurance policies include ACV reimbursement by default, because it's the cheaper option for both the insurance company and the policyholder. You can elect to switch to an RCV policy, but keep in mind that your premium will increase. However, paying for an RCV policy can save you a large amount of money in the long term if you do end up with a significant loss.
Your personal property insurance provides comprehensive coverage for your personal items. However, there are certain situations when your items aren't covered. For instance, if you live in an area that is prone to earthquakes or flooding, you'll need to purchase a separate policy.
In the event that a catastrophic earthquake destroys your home, nothing would be covered without earthquake insurance. The same goes for flood damage. You can buy an earthquake policy through most major insurance providers and get flood insurance through the National Flood Insurance Program.