Standard homeowners policies extend coverage to your personal possessions in addition to the structure of your home. Personal property insurance is not as straightforward as dwelling coverage sometimes. Read on to familiarize yourself with the nuances of insuring your belongings.

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 also found in standard renters policies and condo/co-op policies.

What types of damage does personal property insurance cover?

Coverage limits vary with each policy. There are two types of homeowners/renters/condo insurance policies — open peril and named peril — and they determine which types of damage you are covered for.

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:

In these cases, 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 homeowners/condo policies typically exclude coverage for the following:

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 are your personal possessions covered for?

Typically personal property is insured for 20% to 50% of the coverage limits of your home. A typical policy may have $250,000 to cover the home structure and $100,000 of personal property protection (which would be 40% of the $250,000).

We suggest taking an inventory of your most valuable items before starting a policy, so you have a good idea of how much coverage you need.

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. But you receive payment for the object up to its current value 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 object. This type of policy will cost more.

Exceptions to coverage limits

There are certain "high value" objects that homeowners/renters/condo insurance companies will not reimburse completely.

To get the full value of those objects insured, 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 the claim is approved, you will receive the payment in two stages. First, the insurance company will determine an acceptable amount to repair and/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.

Be sure to save all receipts and statements. You will also have two years from the time of the initial payment to replace or repair the object.