According to the FBI, in 2018, property worth more than $16 billion dollars was reported stolen. Many people remain under the misconception that their homeowners policy provides coverage for all the personal belongings in their homes regardless of the type of property. 

That’s not entirely true, though. And every year, many policyholders learn this the hard way when their valuable personal property is damaged or stolen.

Moreover, many homeowners and renters don’t carry enough personal property insurance, also called contents insurance, on some of their most valuable possessions.

It is important for homeowners and renters alike to obtain and maintain the correct type and amount of contents insurance to ensure that their valuables will be replaced after a loss.  

The Basics of Personal Property Coverage

The personal property insurance section of homeowners and renters policies has two very distinct coverage gaps that every policyholder should understand and address to make certain their property is covered sufficiently:

• Valuation: Your insurance policy has a valuation clause regarding how it determines the value of your personal property at the time of a loss, and there are two methods for doing this. You decide which method should be used when the quote is calculated and the application completed. One method is actual cash value, which is calculated by using the purchase price minus depreciation. The other and more popular method is calculated by establishing replacement cost, or the cost to get the item new, and using that amount for reimbursement. With both methods, the deductible you select on the application is subtracted from claim payments.
• Sublimits: Homeowners insurance companies have determined that some categories of personal property are much riskier than others, and as a result, they have established sublimits for payment in those cases:

Most homeowners and renters policies allow policyholders to increase the limits on some or all of these categories with endorsements and additional premiums. 

Policyholders may also elect to “schedule” any items whose value exceeds the sublimits assigned to their category. This is also done with endorsements and paying additional premiums.

Finding that you have coverage gaps after a claim can be financially devastating. You can prevent this from happening by asking questions during the quote and application process.

Should Renters Also Get Personal Property Coverage?

Your landlord’s insurance will not cover your belongings if the structure in which you’re renting burns to the ground. If your rental is burglarized and your personal property stolen, your landlord’s contents insurance will not cover that either.

In fact, your landlord’s insurance will only cover losses related to the structure. If you haven’t purchased contents insurance for the apartment, condo, or home you are renting, you will have to pay out of pocket to replace your property.

The loss of use coverage in a rental policy also has an effect on your personal belongings. If your apartment was unlivable because of a fire, your loss of use coverage would reimburse you for the additional expense of a temporary rental while your apartment or home is under repair. This would include temporary storage expenses for your belongings.

The bottom line for renters and homeowners is basically the same regarding contents. In order to get the right amount of coverage for your personal belongings, speak with your insurance agent and consider every coverage and whether it provides the appropriate protection specific to your needs.

The decision on whether to base your personal property coverage on replacement cost or actual cash value is always made at the time of application. If you prefer to have claims resolved in a way that allows you to replace your contents on a new-for-old basis, then replacement cost should be your choice. 

If you are not as concerned about your contents, and only expect the cash value for them at the time of a loss (depreciated value), then you should choose actual cash value coverage and save a little money on your insurance premium.

If you prefer to have claims resolved in a way that allows you to replace your contents on a new-for-old basis, then replacement cost should be your choice. 

Getting the Right Amount of Personal Property Insurance

When it comes to your personal property insurance, you decide the amount of coverage you need under your homeowners or renters insurance. 

Many agents have access to software that calculates personal property replacement cost based on national averages that take into consideration the rooms in your home or apartment, but do not consider things like expensive jewelry, furs, firearms, or artwork. 

If you do not keep any of these valuable items in your home or apartment, then the national average amount will probably suffice or be somewhat higher than your actual needs. If you have valuable items that are subject to sublimits in your policy, then you will need to discuss additional coverages with your agent.

Your responsibility as the applicant is to provide your agent with the value of the items you own (appraisals may be required) and to make certain they are insured appropriately by scheduling the property on your policy or purchasing a personal articles floater. 

Your agent will help you decide which type of endorsement best meets your needs and the associated premium that will be charged for the additional contents insurance coverage. 

It is important to note that this property is insured at “stated value” rather than replacement cost, and the deductible that applies is typically lower than your policy’s regular deductible.

Named-risk coverage vs. all-risk coverage: Depending on the type of policy being considered, your personal property will be insured for named perils (named-risk) or all perils (all-risk). A typical homeowners policy is written on a special policy form, called an HO-3 form, which provides contents insurance coverage on a named-risk basis. 

This means that 16 perils are covered. Many agents offer an HO-8 form, which is typically designed for newer homes that are protected by alarm systems and located in gated communities. This type of policy insures your contents on an all-risk basis. 

This means that your property is covered for every peril unless it is excluded in the policy. The exclusions are usually applied because another type of policy, such as flood or earthquake, provides coverage for the excluded peril.

Unscheduled property floater: An unscheduled property floater is a way to provide additional insurance on categories of personal contents on a broad basis. 

Instead of separately listing each firearm in a collection and the amount of insurance required, the policy provides coverage for the firearm category and assigns a limit the company is willing to accept. The additional premium for this type of floater is typically much lower than a scheduled property floater.

Scheduled property floater: A scheduled property floater provides a specific amount of coverage for specific items. You might list items such as these:

• One man’s watch: Rolex Model XYZ – appraised value $18,000
• One woman’s wedding ring: 2 ct diamond in 18 ct gold band – appraised value $6,000
• One antique 16-gauge shotgun: Remington – appraised value $8,000

With a scheduled property floater, the policyholder insures by item rather than by category and the insurance company agrees to accept limits based on the appraisals. Although a higher premium is charged, a scheduled property floater will pay the limits on a per-item basis rather than a per-category basis.