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Imagine you’re sound asleep one night when a strong wind gust suddenly sends the giant tree in your yard crashing through the roof. Everyone in your home is okay, but in addition to the gaping hole in the ceiling, the tree destroyed everything in its path, including the television, gaming consoles, and multiple pieces of furniture.
Your homeowner's insurance policy will pay to fix the roof, but what about your belongings? That’s where personal belonging insurance, or contents insurance, comes in.
The typical home insurance policy includes two types of coverage: dwelling and personal property. The dwelling insurance protects the actual physical building against the perils named in the policy. Personal property insurance covers the items inside the building, helping you become whole again after a disaster.
Although possessions coverage is a standard part of most homeowner’s insurance policies, many people don’t know how to maximize belongings protection. Our guide explains the basics of this type of insurance, what to consider when purchasing a policy, and how to make sure you have enough protection for your possessions.
Personal belongings insurance is a standard part of homeowners, renters, and condo insurance policies. If you experience one of the covered perils (the specific disasters named in the policy), the policy will replace the stolen, damaged, or destroyed items.
Items insurance covers almost everything you own, including:
The coverage extends to your possessions wherever they are. For example, if you are on vacation and a thief steals your backpack that contains your laptop and cell phone, you can claim the loss on your homeowner’s insurance policy.
Personal property insurance doesn’t cover everything. For example, it won’t cover your vehicle, as that falls under your auto insurance policy. It also won’t replace items that don’t belong to you; for instance, if you rent a room to someone, the coverage does protect their belongings.
The other crucial limitation on belongings protection is when you can make a claim. You can only request reimbursement for items lost or destroyed for the specific reasons listed in the policy, unless the policy is a more expensive “open peril” one, meaning it covers anything that isn’t on the list of exclusions.
Named peril coverage is more common, though, and while insurance carriers may have slight variations, most include the following:
One peril that’s noticeably absent from the list is flooding or water damage. Most homeowner policies specifically exclude flooding from the list of covered perils, as it is a high-risk event that typically leads to substantial losses. If you want or need this protection, you must purchase a separate flood insurance policy.
Items insurance also doesn’t cover normal wear and tear or damage to your belongings unrelated to a covered peril. For instance, if your children break the television while roughhousing, you’ll have to replace it out of your pocket, as the insurance will not pay a claim for the damage.
Typically, the maximum coverage amount for personal belongings is about 50% to 70% of the dwelling coverage, according to Insurance Information Institute. In other words, if your homeowner’s policy provides $500,000 of coverage for the dwelling, the belongings security portion will be $250,000 to $350,000.
Most policies have caps on how much they’ll pay for individual items; for example, you can only claim up to $2,500 for a computer or $1,500 for jewelry. You will also have to pay a deductible when you make a claim.
The most important decision you’ll make when buying personal belonging insurance is whether to invest in a replacement cost vs. actual cash value policy. This determines how much the insurer will compensate you for your loss.
Actual cash value (ACV) policies will pay the item’s current value, i.e., the original item cost minus depreciation. This means you might only receive a few hundred dollars for items you spent thousands on several years ago. Some policies will pay the lesser of the repair cost or the current value, so you might get even less for your items if they are repairable.
Replacement cost policies will pay the cost to buy a comparable item at current prices. For example, an item you purchased for $500 five years ago might cost $750 to buy new today, so the policy will pay $750. The insurer will first pay you the ACV of the item, and when you repair or replace it, you can submit the receipt for reimbursement of the difference, also called the recoverable depreciation.
ACV policies cost slightly less than replacement cost policies. However, if your insurance doesn’t pay out enough to replace your lost or damaged belongings, you will spend more than you would have on a higher-value policy.
Because the caps on personal property claims may not adequately compensate you for certain items, you may need additional valuables assurance to ensure you can replace them. Some of the items that need additional insurance include:
You have two options for additional protection on these items.
This allows you to insure a specific item, such as original artwork or heirloom jewelry. Most insurers require an appraisal to determine the value, but you can expand the coverage to include more perils, including loss.
Blanket coverage increases the limit on broad categories of items, like jewelry or collectibles. You don’t need an appraisal for this type of personal belongings coverage.
Many people see the coverage limit for their belongings on their homeowner's insurance policy and think they don’t need that much insurance. Before you lower the limit to reduce your premium, take inventory of your belongings. Even with depreciation, you’ll likely have more than you think.
Taking a household inventory is the first step in purchasing insurance for your possessions. Go room-by-room and take stock of everything you own, particularly big-ticket items and anything you would want to replace. Record the process or take photos of items as you go, which can help if you need to make a claim.
Compiling records of your belongings, with details about the make and model, the serial number, and the receipt, whenever possible, can also help you tally the value of your belongings so you purchase enough insurance coverage. According to the Insurance Information Institute, only 43% of homeowners have an inventory of their belongings, but tackling this task can help reduce stress when you need to make a claim.
Once you have an estimate of your belongings, you must select a deductible, or the amount you’ll pay out-of-pocket when you make a claim. The higher the deductible, the lower the premium, but keep in mind that you must be able to pay it after a disaster.
Although personal belonging insurance is part of a homeowner's insurance policy, you need renter’s insurance if you don’t own your home. The landlord’s insurance policy will not cover your losses. The coverage limits on a renter's insurance policy are typically much lower than those on a homeowner's policy, but you should still conduct a home inventory to ensure you have enough insurance to replace everything.
The chance you’ll ever need to make a claim to replace your personal belongings is low. Only about one in 20 insured homes have claims every year, according to Insurance Information Institute, and most often for property damage due to wind and hail. Still, you deserve the assurance of knowing you’ll have the resources to replace your belongings when things go wrong.
If you’re looking for an insurance policy to protect your belongings against theft, damage, or destruction but don’t know where to start, Insurdinary can help. With our easy-to-use online quoting tool, you can get several competitive quotes from leading insurers in minutes. Compare the results side-by-side, and when you’re ready to buy, one of our friendly, licensed insurance agents will walk you through the enrollment process.
Getting adequate personal belonging insurance doesn’t have to be complicated or break the bank. With help from Insurdinary, you can get peace of mind without hassles, so check out our quoting tool today and contact us if you have additional questions.