Why insure your Personal Property?
Property insurance covers risk from loss or damage to your personal property. Even the smallest residence can contain property worth thousands of dollars--for instance, an entertainment or sound system, home computer, or jewelry. If a catastrophe struck tomorrow, and you could afford to replace everything you own, then you may not need property insurance. If that isn't the case, then it's likely you need it.
Homeowner policies cover personal property to some extent
In addition to your home, a standard homeowners policy also covers personal property, meaning articles you own other than land and buildings. Your personal property consists of the contents of your house (like furniture, clothing, and stereo equipment, as well as outdoor items like sporting equipment and gardening tools). Generally, the limit for personal property coverage is stated as a percentage of the dwelling coverage amount listed within the policy.
If you own a condominium or cooperative unit, your homeowners insurance provides coverage for your personal property and any portion of the unit you own under the terms of the condominium or cooperative documents. Similar to a homeowner, you must choose a specific amount of coverage for the building. It is crucial to determine how much responsibility you have under the condominium or cooperative documents. In these types of situations one should never guess what these amounts or percentages are. It is advisable to find out for sure and if possible receive this information in writing. Then keep it in a safe place in case you need it in the future.
Homeowners policies have set limits
Homeowners policies set specific dollar limits for particular categories of personal property in a section entitled Special Limits of Liability. Note that for some categories, the policy specifies a limit only for theft, not for damage or destruction. The reason is that items such as jewelry, firearms, and furs are especially susceptible to theft, and insurance companies want to limit their exposure to these fairly common incidents. The damage or destruction of these items is less common, and insurance companies are willing to cover them up to their actual cash value.
Below are some examples of the standard limits for particular categories of personal property:
- $200 for money, bank notes, bullion, gold, silver, coins, and metals
- $1,000 for securities, accounts, deeds, letters of credit, notes other than bank notes, manuscripts, personal records, passports, tickets, and some other related items
- $1,000 for the theft of jewelry, furs, watches, and precious and semi-precious stones
- $2,000 for the theft of firearms
- $2,500 for the theft of silverware, silver-plated ware, goldware, gold-plated ware, and pewterware
- $2,500 for property at the residence used for business purposes
- $250 for property used away from the residence for business purposes
*Of course, depending on your policy's type, limits and endorsements these figures may or may not be accurate.
Chances are, the value of many of your personal belongings may exceed the limits in your homeowners policy. Only you know for certain. That's why you have the option of increasing these specific limits by purchasing either a Scheduled Personal Property endorsement or a floater. You may need an increased jewelry limit, for instance, for covering engagement or wedding rings. If you buy a personal property rider, you must be able to verify the cost and condition of the item. Photos or a video can be used to inventory your property. However, you should be sure to keep the inventory away from the premises (i.e., safe deposit box). Professional appraisals are needed for certain items, such as jewelry, antiques, or camera equipment (beyond a basic camera).
Renters need property insurance, too
Many renters are under the mistaken belief that they are covered under their landlord's homeowners insurance policy. This is not true. Your landlord's policy covers the building itself, not the personal belongings of you or other tenants. The fact that you pay rent instead of a mortgage payment doesn't make your personal possessions any less valuable. By taking out a renters insurance policy, you can cover your personal property from loss or damage that results from broken pipes, fire, theft or any other event specified in the policy. In fact, renters may even be more likely to suffer from a loss of personal belongings because they live in close proximity to other individuals and families.
Renters insurance also protects you from liability claims against you if someone suffers an injury or property damage because of something you did or didn't do. For example, if you forget to turn your stove off, and your apartment catches fire and destroys the building, you could be held liable by the landlord. Your renters insurance policy provides a set amount of liability protection.
In addition to protecting you from property loss or damage and liability claims, renters insurance (HO4) is very reasonably priced.
Protect your possessions wherever they are
Property insurance may protect your possessions wherever they are. For example, if you are on vacation and lose a valuable item, as long as the loss is by a covered peril or event, in most cases the location doesn't matter. Your policy will specify covered perils and events.
How much property coverage do you need?
To determine how much property insurance coverage you need, make an inventory of all your home's contents. Don't forget to include furniture, appliances, jewelry, artwork, and the contents of your closets, cabinets and the toy chest. When possible, list the serial number, date and cost of purchase. Include receipts if possible. An easy way to inventory your possessions is to use a video camera or take photos. When using a video camera, you can talk about the specific items, their cost, and when you bought them. Ideally, you would want enough insurance coverage to replace your possessions if they were destroyed.
Keep a copy of your inventory in a location away from your home, like a safety deposit box, or maybe at a close friend or relative's house. This way, if your home is destroyed, your inventory list will be safe at another location. When you make major purchases, remember to add them to your inventory and check with your insurer--you may need to increase your coverage levels.
Two methods to determine value
Insurance companies use one of two methods to determine the value of property:
- Replacement cost--pays you the cost of replacing damaged property, with no deduction for depreciation, but with a maximum dollar amount.
- Actual Cash Value--pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.
Unless a policy specifically states that property is covered for its replacement value, coverage is for the lower, actual cash value. Check your policy, or ask your insurance agent or representative if you are not sure what level of coverage you have.
Periodically review your existing coverage
Review your existing homeowners or renters policy to make sure you have enough coverage for all valuable possessions. Periodically review your coverage to make sure it is keeping pace with new purchases and/or gifts you have received.