What is Personal Property Insurance?
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Personal property insurance is a component of standard homeowners policies that extends coverage beyond the structure of your home to your personal possessions.
What is personal property coverage?
Personal property coverage financially protects the belongings inside your home, such as furniture and appliances. The great thing about this part of homeowners insurance is that your belongings are protected outside of the home as well. The same type of coverage is found in standard renters policies and condo/co-op policies.
What types of damage does personal property insurance cover?
Coverage limits vary by policy. There are two types of homeowners/renters/condo insurance policies — open peril and named peril — that determine which kinds of damage are covered.
Policies with named perils
Standard homeowners insurance policies are called HO-3 policies, and they cover personal belongings against named perils. To submit a claim, your belongings must be destroyed by something explicitly listed in the policy. The 16 most common perils listed in these policies include:
- Lightning or fire
- Hail or windstorm
- Damage caused by aircraft
- Explosions
- Riots or civil disturbances
- Smoke damage
- Damage caused by vehicles
- Water damage from plumbing, heating or air conditioning overflow
- Theft
- Vandalism
- Falling objects
- Volcanic eruption
- Damage from the weight of snow, ice or sleet
- Water heater cracking, tearing and burning
- Damage from electrical current
- Freezing of home systems like pipes
So, if your couch is ruined from a burst pipe in the ceiling or your fridge goes up in flames, you are covered, because these events are considered perils. On the other hand, if your living room is torn up by a wild animal after you accidentally leave your door open, your property would not be covered, because you are not explicitly covered for "wild animal damage."
In that case, you would need an "open peril" policy.
Open peril policy
Open peril policies protect your belongings from any type of damage, so long as it is not explicitly excluded from your policy. Standard open-peril homeowners/condo policies typically exclude coverage for the following:
- Natural settling, cracking, shrinking, bulging or expansion of the foundation
- Earthquakes and floods
- Pressure from tree roots
- Faulty construction
- Damage caused by insects, vermin, rodents or pets
- Natural wear and tear
- Mold
- Corrosion
The burden of proof typically falls on the insurance company, so they have to prove the cause of the damage was something they explicitly exclude in their policy.
How much coverage do you have for your personal possessions?
Usually, personal property is insured for 50% to 70% of the coverage limits of your home. A typical policy may cover $250,000 for the home's structure and offer $125,000 of personal property protection (which is 50% of the $250,000). You'll set this amount when you buy your policy and can adjust the amount as your needs change.
The amount of coverage you need will depend on the value of the belongings being covered.
We suggest taking an inventory of your most valuable items to get an idea of your coverage needs before starting a policy.
Actual cash value vs. replacement cost value
Standard homeowners policies pay you for the actual cash value of your possessions if they're destroyed in a covered incident, minus depreciation. If you want to be fully insured, you can get a replacement cost value (RCV) policy, which pays you the current market price for an equivalent replacement and doesn't take depreciation or obsolescence into account. This type of policy will cost more per month in premiums.
For example, a TV you bought 10 years ago may have cost $1,000 then, but it has likely depreciated and may only be valued at $200 now. With actual cost value insurance, you would only get $200 after submitting a claim — minus your deductible. With replacement cost value insurance, you would get the full $1,000 to replace your TV with a new one.
Exceptions to coverage limits
There are certain "high value" objects that homeowners/renters/condo insurance companies will not reimburse completely.
The best example is jewelry coverage. You may own $20,000 worth of jewelry, but standard insurance policies only cover up to a specific amount, which is spelled out in your policy — it's often around $5,000. Other examples of high-value items include musical instruments, certain electronics and cash.
To get the full value of those insured objects, you usually have to purchase an endorsement from the insurance company to increase the limits on those objects. There are also extra insurance policies you can take out on those objects as well.
How a personal property insurance claim works
A personal property claim works like any other type of homeowners insurance claim.
If your stuff gets damaged by a covered peril, you can file the claim either online or over the phone. A claims adjuster will come to assess the damage, determine the validity of the claim and report back to the insurer.
If the claim is approved, you may receive the payment in two stages. First, the insurance company will determine an acceptable amount to repair or replace the object. If you have ACV, you'll receive this amount, minus the cost of depreciation. With RCV, you'll receive enough money to replace that item according to its current value.
If you have to spend more than expected to repair the item, the insurance company may reimburse you for the extra cost. Just be sure to save all receipts and statements.
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