What is Personal Property Insurance?

What is Personal Property Insurance?

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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.

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:

  • Lightning or fire
  • Hail or windstorm
  • Damage caused by aircraft
  • Explosions
  • Riots or civil disturbances
  • Smoke damage
  • Damage caused by vehicles
  • Theft
  • Vandalism
  • Falling objects
  • Volcanic eruption
  • Damage from the weight of snow, ice or sleet
  • Water damage from plumbing, heating or air conditioning overflow
  • Water heater cracking, tearing and burning
  • Damage from electrical current
  • Pipe freezing
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 accepted named perils. On the other hand, if your living room was torn up from a wild animal after you accidentally left your door open, your property would not be covered because you are not explicitly covered for "wild animal damage."

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:

  • Natural settling, cracking, shrinking, bulging or expansion of the foundation
  • Earthquakes and floods
  • Pressure from tree roots
  • Faulty construction
  • Insects, vermin, rodents and pet damage
  • 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.

For example, if your clothing or furniture is damaged in an earthquake, you would not be covered. But in our wild animal example, you're not explicitly excluded from an animal trashing your home. You would be covered because the insurance company can't prove your policy excludes the cause of the damage.

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).

The amount of coverage you need (and should have) will depend on the amount of stuff you own and how valuable they are.

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.

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. With replacement cost value insurance, you would get the full $1,000 to replace your TV.

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 certain amount, such as $5,000. Other examples of high-value items include musical instruments, certain electronics and cash.

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 your stuff gets damaged and you think your insurance company will cover it, you can either file the claim 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 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.

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