Homeowners insurance insures the structure of a home, but it also contains a component for personal belongings. Known as personal property coverage, this covers belongings inside the home like furniture, appliances, electronics and clothing. It may also include high-value items, like jewelry and artwork.

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The personal property coverage on your home is generally a percentage of the overall dwelling limit. However, your policy may have specific limits, so if you need to insure certain high-value items, it may require an endorsement. That’s why it’s often important to understand how personal property coverage works, what the limitations are, and how the value of your items is calculated — whether actual cash value or full replacement cost. Knowing this information may help you choose the coverage types that fit your needs.

What is personal property insurance?

Personal property insures the contents of your home so that they may be repaired or replaced after a covered loss. Your TV, workout equipment, musical instruments, sports paraphernalia and more may all qualify for coverage under the personal property coverage of your homeowners insurance policy.

Certain high-value items, like jewelry, artwork and other valuables, may have limited coverage in the personal property coverage of a home insurance policy. To fully insure these items, many home insurance companies offer a scheduled personal property coverage endorsement, which gives policyholders extended coverage on their more valuable possessions, both in coverage limits and perils. For instance, most scheduled personal property endorsements cover property on an open perils basis, where losses resulting from anything other than specifically stated exclusions are covered. Renters insurance personal property typically works the same way as homeowners insurance personal property coverage.

Keep in mind that in homeowners insurance, personal property insurance is for items for your personal use only. If you run a business in your home, you may need a separate business personal property insurance.

How does personal property insurance work?

Personal property insurance may help you pay to repair or replace your belongings if they are damaged or destroyed by a covered peril. After you meet your deductible, the insurance company will help pay for losses covered under your policy.

Homeowners insurance companies offer personal property insurance in different levels of coverage, which is the maximum amount they will pay for after a covered loss. When you purchase a policy, you can choose your level of coverage based on the total value of your items. Higher levels of coverage usually mean you’ll pay a higher premium.

Most insurance for personal property provides coverage for your belongings at 50-70 percent of your dwelling insurance. However, you might need less or more coverage depending on the value of your belongings.

What does personal property insurance cover?

Your personal property policy covers all of your personal belongings, wherever you keep them, with some limitations. This includes the interior of your house, yard, shed, car, garage and even in hotels when you travel. However, your items are only protected from covered losses. For example, your insurer likely will not pay out a claim if your lawnmower breaks down or you want to upgrade your refrigerator.

While standard coverage may be sufficient for some people, others might need to boost their coverage for added financial protection. Before purchasing a personal property insurance policy, most insurance professionals recommend figuring out how much coverage you need based on the total value of your belongings and where you live.

Your dwelling and personal property will be covered differently depending on the type of homeowners insurance policy you have. An HO-3 policy covers dwelling on an open perils basis, but personal property is covered on a named perils basis. In contrast, an HO-5 policy covers both dwelling and personal property on an open perils basis.

Open peril policy

An open peril policy covers your personal belongings from any type of accidental damages that are not explicitly written as an exclusion in your policy. For this reason, they are typically more expensive than named peril policies. Some of the situations that an open peril policy would cover may include a kitchen fire that causes stove damage or a storm that destroys plants and landscaping.

Named peril policy

If you have a named peril policy, the insurance company will only cover certain losses that are specifically stated in your insurance policy. Named perils usually include coverage for damage caused by things like:

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Aircraft
  • Vehicles
  • Smoke
  • Vandalism
  • Theft
  • Volcanic eruption
  • Falling object
  • Weight of ice, snow, or sleet
  • Accidental water overflow or steam
  • Sudden and accidental tearing apart, cracking, burning, or bulging of certain household systems
  • Freezing
  • Sudden and accidental damage from artificially generated electrical current

For either policy, you will need to determine the dollar amount of how much coverage you need. That will likely depend on the value of your items, where you live, how much risk you’re willing to take and the amount you can afford to pay if you had to replace your items.

ACV vs. RCV

When you file a claim for a covered loss, your insurance company will pay for covered damages after you have met your deductible. However, the amount of money you get depends on how your insurance policy calculates reimbursement. This is where actual cash value (ACV) versus replacement cost value (RCV) comes into play.

An ACV policy factors in depreciation when determining the value of your items. For example, you may have purchased a laptop five years ago for $1,000, but it is now worth $500 because it has depreciated, or lost value, over time. In the event of a covered loss, the insurance company would reimburse you $500 for that laptop.

On the other hand, an RCV policy doesn’t factor in depreciation. The insurance company will pay to replace your damaged or destroyed items based on their current market value up to your policy limit. Most standard homeowners policies use ACV as the default option, while the HO-5 policies may use RCV.

How much does personal property insurance cost?

As of 2022, the average cost of homeowners insurance is $1,383 per year for $250,000 in dwelling coverage. Depending on your home’s location, age, coverage limits and other personal rating factors, your premium may be more or less than the national average.

Additionally, your insurance rate may vary based on whether you have an ACV or RCV policy. Remember that ACV coverage is usually the default option for standard homeowners (HO-3) policies and are typically cheaper. If your insurance company offers an RCV option or you’ve added an endorsement for scheduled personal property, your home insurance may be more expensive

While your homeowners insurance might be expensive, there are ways you may be able to save money on your premium. Here are some steps that might lower your premium.

  • Maintain your home: Old homes tend to be more likely to have claims compared to newly-built homes, which may make insurance premiums more expensive. To reduce the chance of claims, you might replace the roof when needed, fix broken stairs or pavement or install safety equipment like a security system.
  • Improve your credit score: People with low credit-based insurance scores tend to have higher homeowners insurance premiums. If you raise your credit score, your insurance provider might lower your annual rate.
  • Avoid filing claims: Claims tend to make your insurance rate go up. Some insurance experts recommend avoiding filing frivolous claims when possible. This could include repairing or replacing inexpensive items yourself, even if it costs you a little money out of pocket. Speaking with a licensed insurance agent may provide you more context on what damages warrant a filed claim.
  • Bundle with your auto insurance: One of the best home insurance discounts may be earned by bundling your home and auto insurance with the same carrier. This usually results in a discount on one or both policies.

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