For example, your countertops are a fixture of your home. They’re part of the permanent structure, which makes them real property. The blender on top of the countertop, though, doesn’t have to be there. You can move it around or throw it away altogether, which makes it personal property. The same is true for larger, non-built-in appliances, like your fridge and stove. Understanding the distinction between the types of property is most important when buying homeowners or renters insurance. Both types of policies cover losses from damage to your personal property in certain incidents. You’ll need to know how much personal property you own to ensure your policy’s coverage limit is high enough.
How Personal Property Works
Whether you’re a homeowner or a renter, you often have to get coverage for your personal property. Most mortgage lenders make you get a homeowners policy to get financing. While they often care more about coverage for the land and building, they’ll also probably require you to get personal property coverage. Landlords also often require their tenants to purchase renters insurance as a condition of the lease. One of the primary components of renters insurance is a personal property policy—an important coverage, as your landlord’s policy won’t protect your belongings. You can usually only get coverage for certain kinds of damage to your personal property. Some commonly covered risks are:
Fire and smokeTheft and vandalismLightning and windstorms
The most popular type of homeowners policy is known as special form insurance, or HO-3. Under this policy, your insurance provider generally will accept claims only for damages to your personal property due to incidents explicitly named in your contract. When might you need to assess your personal property? Say you move into a new apartment, and your landlord tells you to get a renters insurance policy with a minimum of $50,000 in liability coverage. You could take this as an opportunity to get coverage for your personal property. If you calculate your possessions to equal roughly $20,000 in furniture, appliances, clothes, and the like, you could get a policy that satisfies your landlord and protects your belongings against damage.
What Personal Property Doesn’t Cover
Personal property coverage only protects against the risks outlined in your policy. Most home insurance policies are an HO-3 (or “special form”) policy. These policies typically exclude perils such as floods and earthquakes. That means if your personal property was damaged from one of these events, your policy won’t reimburse you. If you wanted to add protection from uncovered perils, you’d either have to purchase a separate endorsement from your insurer (if they offer it) or a separate policy with another company. FEMA, for example, offers its National Flood Insurance Program to insure property owners, renters, and businesses from flood damage.
Types of Personal Property Coverage
You can get two types of coverage for your personal property: replacement cost and actual cash value (ACV). These policies calculate your proceeds for a successful claim in different ways. Replacement cost policies cover the cost of replacing the insured property with one that is similar in type and quality up to the property’s current purchase value. However, there may be allowances for price increases. By contrast, ACV policies pay for the property’s replacement cost minus its decrease in value since the purchase date due to depreciation.
