4 Things Personal Property Insurance Covers (and 3 It Doesn't)

If you own a home or a condo, then you must purchase homeowners insurance. It covers damage to the structure of your home and it also includes coverage for damage to your personal property within the policy limits.

Addition Financial works with prospective homeowners every day and we field a lot of questions about insurance and related topics. If you’ve never purchased homeowners or condo insurance, then you may not understand how much personal property insurance is included and what it covers. Here’s what you need to know.

What is Personal Property in a Homeowners Insurance Policy?

Personal property coverage is included in your homeowners insurance policy. It’s the section of the policy that relates to your belongings (as opposed to the section that applies to the physical structure of your home, or the section that applies to your personal liability for damage to other people or their property). It is sometimes referred to as Coverage C.

Personal property insurance covers your personal belongings, including things such as clothing, electronics and appliances. If your property is damaged in a covered event then your home insurance will pay to repair or replace it.

Most basic homeowners policies default to providing coverage for the actual cash value of personal property items. You have the option of upgrading your policy to cover the replacement value of your property. We’ll talk more about that later.

We should note here that renters insurance also provides coverage for personal property. If you rent an apartment or home, you can purchase rental insurance as a standalone policy to cover your personal belongings. The responsibility for covering structural damage falls to the property owner but their policy will not cover your personal belongings as a renter.

What Are Some Examples of Personal Property for Insurance?

Many of your personal belongings will be covered by the personal property section of your homeowners insurance policy. Here are four things that are covered by personal property insurance.

Personal belongings, including anything that you own personally that is not part of the structure of your home. That includes furniture, home decor, artwork, appliances, electronics, clothing, jewelry, sporting equipment and toys.
Damage incurred by a covered event. We should note here that only damage or loss incurred by covered events is covered. In the world of personal property insurance, damage that is included in your homeowners policy is covered. That includes damage caused by fire, theft and bursting pipes, to name a few.
Damage to your personal property that occurs inside your home. If a pipe bursts and ruins your rugs or you have a house fire that damages or destroys your appliances, these events are covered by your personal property insurance.
Damage to your personal property that occurs outside your home. If you bring your laptop to a hotel with you and someone breaks into your room and steals it, the personal property coverage included in your homeowners policy will cover the theft and allow you to buy a new laptop.

We should note here that in most homeowners insurance policies, the limits for high-cost items such as original artwork and jewelry are capped. You can increase the limits by scheduling these items individually and paying for additional coverage. If you have a lot of high-cost items in your home, it is probably worthwhile to pay a higher premium to be able to replace them if they are stolen or destroyed.

What is Not Covered by Personal Property Insurance?

A frequent question of homeowners is about what is not covered by personal property insurance. There are three things that fall outside of the purview of your homeowners insurance.

Damage caused by non-covered events. As we mentioned above, only damage caused by specific things is covered. This limitation applies both to damage to the structure of your home and to your personal property. What your homeowners personal property insurance doesn’t cover is damage caused by non-covered events. For example, flood damage is not covered by homeowners insurance. If you live in an area prone to floods, you should buy flood insurance through the National Flood Insurance Program. The same is true of earthquake damage.
Damage to the structure of your home. If your roof is damaged by a falling tree, the coverage for damage falls under the dwelling coverage in your policy, not the personal property section.
Routine wear and tear. Personal property insurance doesn’t provide coverage for routine wear and tear, either. If your dishwasher breaks down or your TV stops working, those things are not covered. To cover those, you would need to purchase a separate home appliance insurance policy.

For #1 and #3, you have the option of purchasing additional coverage to fill the gaps. The damage detailed in #2 is already covered by another section of your policy.

How Much Personal Property Insurance Do You Need?

According to Policy Genius, your personal property insurance limit should be between 50% and 70% of your dwelling coverage limit. (Dwelling coverage pays for damage to the structure of your home.) However, you may need more than that depending on what personal property you own.

You can use these methods to determine how much insurance you need:

Take a personal property inventory. We suggest making note of model names and numbers when possible. We also recommend taking photographs. Having detailed records of your property will make it easier to file a claim if necessary.
If you have older items that will cost more than their actual cash value to replace, then you should consider upgrading your personal property coverage to provide you with the replacement value of your belongings. For example, a 5-year-old refrigerator might be worth less than a thousand dollars but cost upwards of $2,000 to replace with a similar model.
High-value items should be scheduled separately with limits that reflect their value. For example, you might have a $10,000 engagement ring or an original painting that’s worth $15,000. The typical limits for a single piece of property would not cover the value of these items. Listing them separately allows you to choose higher limits.

Your insurance agent will be able to help you evaluate your insurance needs and recommend the best policy limit to protect your personal property.

How Much Does Personal Property Insurance Cost?

Because personal property insurance is included in your homeowners insurance policy, the price is built into your homeowners insurance premium. According to Market Watch, the average price of homeowners insurance in the United States as of December 2021 is $1,249 per year, which translates to $104.08 per month.

That amount may be higher or lower depending on a variety of factors, including the following:

Where your home is located
The value of your home
The coverage limit you choose for personal property insurance
Whether you choose actual cash value or replacement value
Whether you schedule high-cost items with higher limits than the basic policy

You should know that getting coverage for the replacement value of your personal property items will increase your premium by about 10%. The cost of scheduling high-cost items will depend upon their value and the coverage you need. You will need to talk to your insurance carrier about those costs.

Is Personal Property Replacement Cost Worth It?

The final topic we want to cover is whether it is worth it to pay 10% more for your homeowners insurance to get coverage for the replacement value of your personal property. This question is one that comes up a lot when we talk to people about homeowners insurance.

As we’ve already mentioned, the actual cash value of some personal items may be far less than the replacement value. Things like electronics and appliances depreciate over time. A refrigerator that cost you $1,000 when you bought it might have an actual cash value of only $200 after you’ve owned it for a while. If that refrigerator is destroyed in a fire, then it might cost you $1,500 to replace it thanks to rising prices. With only $200 of coverage for the actual cash value, you would be left footing a $1,300 bill to buy a new refrigerator.

By contrast, upgrading to the replacement cost would mean that you would get $1,500 to buy a new refrigerator after paying your homeowners insurance deductible. If you assume that your homeowners policy with actual cash value had a premium right at the national average of $104.08 per month, you could expect to pay about $114.49 per month for replacement coverage. That’s a little more than $10 per month. You would need to pay 130 months (nearly 11 years) at the higher premium to pay as much as you would to replace your refrigerator.

The takeaway here is that, given the depreciation of big-ticket items such as appliances and the relatively low cost of personal property replacement coverage, we believe that paying extra for the coverage is worth it.

Personal property insurance is included in your homeowners policy. Purchasing the right coverage and policy limits can provide you with peace of mind that you can replace your personal belongings if they are damaged, destroyed or stolen.

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