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