What is personal property coverage?

Personal property insurance protects your belongings in your home, such as furniture and appliances. The great thing about this aspect of homeowners insurance is that it protects your belongings outside of the home as well. Standard renters policies and condo/co-op policies both provide the same type of coverage.

What types of damage does personal property insurance cover?

Each policy has different coverage limits. There are two kinds of homeowners/renters/condo insurance policies: open peril and named peril, and they determine which types of damage are covered.

Policies with named perils

HO-3 policies are standard homeowners insurance policies that protect personal belongings against specified perils. To file a claim, your belongings must have been destroyed by something specifically mentioned in the policy. These policies list the following as the 16 most common perils:

  • Fire or lightning
  • Windstorm or hail storm
  • Aircraft-caused damage
  • Explosions
  • Riots or civil disturbances
  • Smoke harm
  • Damage caused by vehicles
  • Theft
  • Vandalism
  • Falling objects
  • Volcanic eruption
  • The weight of snow, ice, or sleet causes damage.
  • Overflowing water from plumbing, heating, or air conditioning
  • Water heater cracking, tearing and burning
  • Electrical current damage
  • Pipe freezing

So, if your couch is ruined due to a burst pipe in the ceiling or your fridge catches fire, you're covered because these events are recognized as named perils. However, if a wild animal tore up your living room 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, a "open peril" policy would be required.

Open peril policy

Open peril policies protect your belongings from any type of damage that is not expressly excluded from your policy. Standard homeowners/condo insurance policies typically exclude coverage for the following items:

  • Natural foundation settling, cracking, shrinking, bulging, or expansion
  • 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, which must demonstrate that the cause of the damage was something expressly excluded in their policy.

How much are your personal possessions covered for?

Personal property is typically insured for 20% to 50% of the coverage limits of your home. A typical policy might cover the home structure for $250,000 and personal property for $100,000 (40 percent of the $250,000).

The amount of coverage you require (and should have) is determined by the amount of property you own and its monetary value.

We recommend taking an inventory of your most valuable items before beginning a policy so you can determine how much coverage you require.

Actual cash value vs. replacement cost value

If your possessions are destroyed in a covered incident, standard homeowners policies will reimburse you for the actual cash value of your belongings. However, you are paid for the object up to its current value minus depreciation. If you want to be completely covered, you can purchase a replacement-cost value (RCV) policy, which will pay you the current market price for an object. This type of policy will be more expensive.

For example, a TV purchased ten years ago may have cost $1,000 at the time, but it has likely depreciated and is now only worth $200. After filing a claim, you would only receive $200 with actual cost value insurance. You would receive the full $1,000 to replace your TV if you had replacement cost value insurance.

Exceptions to coverage limits

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

Does Homeowners Insurance Cover Damaged or Lost Jewelry? is the best example. Although you may own $20,000 in jewelry, standard insurance policies only cover up to a certain amount, such as $5,000. Musical instruments, certain electronics, and cash are also examples of high-value items.

In order to insure the full value of those objects, you must usually purchase an endorsement from the insurance company to increase the limits on those objects. There are also additional insurance policies available for those items.

How a personal property insurance claim works

A personal property claim functions similarly to any other type of home insurance claim.

If your belongings are damaged and you believe your insurance company will cover it, you can file a claim online or over the phone. A claims adjuster will arrive to assess the damage, determine the validity of the claim, and provide a report to the insurer.

If your claim is approved, you will be paid in two installments. First, the insurance company will decide how much it will cost to repair or replace the object. If you have ACV, you will receive this amount less the depreciation cost. You will receive enough money to replace that item based on its current value if you use RCV. If you have to spend more money than expected to repair the item, the insurance company may reimburse you.

Make a point of keeping all receipts and statements. In addition, you will have two years from the date of the initial payment to replace or repair the object.