What Is Personal Property Insurance and How Much Do You Need?

Personal property insurance is often sold as part of a homeowners insurance or renters insurance policy. It provides coverage for personal items, such as furniture and electronics. This guide explains how to get comprehensive personal property coverage and why it's so important. Read on to learn more.

What is personal property coverage?

As it’s often included as part of insurance coverage related to your dwelling, homeowners and renters will both want to be able to answer the question, "What is personal property coverage?" That's because most people cannot afford to replace all their possessions if something goes wrong. Personal property coverage ensures they won't have to. An insurer provides compensation after a covered event damages or destroys property.

What does personal property insurance cover?

Personal property insurance covers possessions that can be purchased, owned, or moved. Personal property is distinct from real property. Real property is non-movable property. Examples of real property include a home, land, or swimming pool.

Types of personal property covered

Personal property insurance as part of a renters or homeowners insurance policy typically covers belongings such as:

• Electronics
• Furniture
• Clothing
• Jewelry
• Artwork
• Rugs
• Outdoor equipment (such as lawn mowers)

Essentially, it covers items people would traditionally keep in a home and take with them upon moving.

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Types of damages covered by personal property insurance

In order for personal property to be covered, generally whatever happened to the property must have been a covered loss. Common examples of damages covered by personal property insurance include:

• Fire
• Lightning
• Explosion
• Windstorm
• Hail storm
• Water leak
• Burglary and theft
• Smoke
• Vandalism

Some policyholders may also purchase additional protection, such as from floods, wildfires, or earthquakes. Check with the best homeowners insurance companies for guidance about what is and is not considered a covered peril in your area.

How much personal property coverage do I have?

When buying renters and homeowners insurance, policyholders determine how much personal property coverage to get.

A policyholder's homeowners insurance cost or renters insurance cost is impacted by the amount of coverage they buy. Buying more coverage results in higher premiums. Buying less coverage -- or waiving coverage -- results in lower premiums.

Policyholder's can look at their insurance declaration page. It will list how much personal property protection they have. Most often, the amount is represented as a value of the percentage of the home's structure.

For example, a policyholder who has a house insured for $250,000 might have coverage for anywhere from 20% to 50% of that amount. That would mean the policyholder has personal property insurance for between $50,000 and $125,000 worth of property.

How much personal property coverage do I need?

When purchasing home insurance, it's crucial to answer the question, "How much personal property insurance do I need?" Buying too little protection could result in large out-of-pocket losses. A policyholder with too little coverage would have to personally pay to replace stolen or damaged items.

Unfortunately, it can be complicated to determine the necessary amount of personal property insurance. That's because it depends on the value of each individual policyholder's possessions. The goal is to buy enough coverage to replace most or all personal items if something happened to them.

How do I value my personal belongings?

When buying personal property insurance, it is important to make an inventory list of all property that should be covered by the policy. This means policyholders would go through their home or apartment. Move room by room, listing valuable items and estimating how much each would cost to replace if it was destroyed.

This list of personal belongings can be helpful to determine how much personal property insurance is required. It is also important when making a claim for insurance. It can be used to show the insurer which possessions were lost.

Personal property replacement cost vs. actual cash value

When buying personal property coverage, it's important to carefully consider the differences between replacement coverage and actual cash value coverage.

Replacement coverage pays for the cost of replacing a destroyed possession. For example, if a sofa is destroyed in a fire, insurance will pay for a new sofa.

Actual cash value coverage pays only the fair market value of the destroyed or stolen possession. If a 10-year-old sofa is destroyed, insurance would pay the amount the old sofa would be sold for on the open market.

Replacement coverage obviously provides much more protection. Many homeowners or renters purchasing personal property insurance would do better to choose replacement coverage. That's true even though it is typically more expensive than actual cash value coverage.

Insuring jewelry and high-value items

Many homeowners insurance policies set limits on jewelry and other high-value items. For example, a personal property insurance policy might limit coverage for jewelry to $2,500. Coverage for firearms, gold and silver, furs, and antiques may also be limited.

For policyholders who want more coverage for specific high-value items, it may be necessary to purchase a rider, which is an add-on to the standard insurance. Or it may be necessary to purchase an entirely separate policy.

What is not covered under personal property insurance?

Only movable possessions that can be purchased and owned are covered under personal property insurance. Vehicles, the home's structure, and permanent structures such as a swimming pool or shed are not covered.

Most personal property insurance policies also impose certain sub-limits. For example, personal property coverage for jewelry may only pay up to $2,500 regardless of how valuable the policyholder's jewel collection actually is.

Personal property coverage for homeowners vs. renters

Homeowners can purchase personal property insurance as part of their home insurance coverage. A home insurance personal property policy adds protection for possessions onto protection for a home.

For renters, a landlord will likely have insurance covering the structure of the home, but a landlord's policy will not cover any of a renter's possessions. As a result, it's critical to purchase protection for personal property as a renter. This can come in the form of a renters insurance policy.