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Personal property insurance: Why you need it and how to pay less

By Posted : 04/14/2016

Additional reporting by Gina Pogol

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personal propertyPersonal property insurance, also known as "contents insurance," reimburses you in the event that your possessions within the home (whether you own or rent) are damaged, destroyed, lost or stolen.

Do you actually need personal property insurance? To find out, grab a camera or smart phone and begin walking through your home, room by room, opening closets and drawers, and snapping pictures of everything that is not nailed down:

  • Furniture
  • Clothing
  • Appliances
  • Stereos
  • Televisions
  • Computers
  • Artwork
  • Rugs, window treatments and other décor
  • Dishes
  • Wine and spirits
  • Sporting goods and toys

As you take this visual inventory, imagine what it would cost if everything was lost in a flood or fire--could you afford to replace what's most important to you? If not, you might need personal property insurance.

Personal property insurance: single-family home

If you own your house, your homeowners insurance policy includes coverage for personal property--typically totaling 40 to 75 percent of the insured value of the building (note that your building coverage is not related to its market value; it's based on rebuilding costs).

However, coverage for certain types of personal property--artwork, jewelry, antiques and firearms, for example--is very limited, ranging from $1,000 to $2,500. You'll find these exclusions in your policy under Section I, Personal Property, Special Limits of Liability. If the value of your personal property exceeds the limits of your homeowners insurance, or if you have valuable items that are insufficiently covered by a standard homeowners policy, you may need to expand your contents coverage with a scheduled personal property endorsement (aka a personal article floater).

Scheduled endorsement advantages

These riders cover specified property and establish a "value loss settlement." This means that unless the cause of loss is specifically excluded, the insurer pays the value loss settlement amount if the property is lost, stolen or destroyed. For example, if a ring is insured for its $15,000 appraised value, the insurer pays $15,000 if it's stolen--no deduction for depreciation and no deductible.

Another advantage of scheduled personal property endorsements is that standard homeowners insurance covers personal property replacement in the event of fire, windstorm, lightning, hail or explosions, but not necessarily from theft, loss or accidental destruction. Scheduled personal property endorsements cover your possessions in almost any peril.

Cost of scheduled endorsements

personal property ins costThe amount of coverage you need depends on the value of your possessions, the worth of your house, and the type of coverage you want. If your house is expensive, but your stuff is cheap, your homeowners policy might be sufficient. If the reverse is true, or you want to cover items that fall under the special limits section, you'll need to purchase additional coverage, typically for about $25 per $1,000 of coverage per year.

Expanded homeowners insurance (HO-5 policy) vs standard coverage (HO-3 policy)

underwritingIf you find yourself with a slew of items that require a scheduled endorsement, there's another option for you to consider--the HO-5 policy. Standard homeowners insurance, called HO-3, is the minimum coverage requirement when obtaining a mortgage, and the most popular policy. It covers a broad range of property types, but offers limited coverage for your personal belongings.

The HO-5 offers increased protection, eliminating many of the limitations of the HO3 and expanding coverage--for example, including a higher limit for jewelry items and business personal property.

It's important to note that HO-5 underwriting guidelines can be more restrictive, and it's limited to relatively new and/or well-maintained homes in good fire protection districts.

Cost of expanded HO-5 coverage

Many items that would require a scheduled property endorsement on the HO-3 are automatically included in the HO-5. For example, replacement cost on contents insurance. This coverage is more expensive than HO-3 coverage, but may be all you need and less expensive than personal property endorsements. The chart below contains data supplied by the National Association of Insurance Commissioners and compares average HO-3 and HO-5 costs.

Premium H03 vs H-5

Source: NAIC.ORG

Property insurance: condos

Home insurance is a little different for condo owners. While those with single-family homes buy policies that cover the building structure, and personal property coverage (within limits as discussed above) is included, condominium owners get their homeowners coverage with their HOA dues. If they want their home's contents covered, they have to purchase this insurance themselves.

What does condo insurance cover?

Condo insurance (called an H0-6 policy) picks up where your association's master policy leaves off--providing protection for your personal property and liability coverage if you cause another person's injury or property damage, or legal fees if you have to defend yourself in a lawsuit.

You want to make sure that your condo insurance plugs any holes left by your master policy. The less coverage provide by your HOA, the more you'll need to buy yourself. Master policies usually take one of two forms:

  • An "all-in" or "single unit" condo master policy covers the fixtures in your condo, appliances, wiring, plumbing, and carpets, but not your personal property.
  • A "bare walls-in" condo master policy covers nothing contained within your walls. It might not even cover your plumbing and electrical systems.

Your H0-6 policy covers loss or damage to your personal possessions, up to the limit you purchase. It also covers personal liability and medical payments. If necessary, you can buy special coverage (a rider) for certain valuables, such as jewelry. This insurance typically covers loss of use after a fire or storm makes your unit uninhabitable. As with single-family homeowners insurance, you may have to purchase additional coverage for high-value or excluded items.

Cost of condo insurance

The average cost of condo insurance in the US, according to NAIC, is $451 per year. Your cost depends on your condo's location, the extent of its master policy coverage, and the amount of personal property you wish to insure. The chart below shows average cost in the U.S. for each coverage amount:

condo insurance cost

Source: NAIC.ORG

Content Insurance for Renters

If you rent, your landlord's insurance policy does not cover your personal things. However, many renters believe that it does, and this misunderstanding can cause bad feelings or even lawsuits between landlords and tenants. For this reason, many advisers recommend that landlords require renters to carry their own insurance coverage for personal property.

What does renters insurance cover?

Even if your landlord doesn't require you to purchase renters coverage, you probably should. Renters insurance costs considerably less than homeowners or condo policies because it doesn't cover the building or the landlord's personal property used by the renter--for example, furnishings and appliances in the apartment or rental home.

medical paymentsRenters insurance reimburses you if your belongings are stolen, damaged or destroyed while in your home, and in some cases, while away from home (for example, if your laptop gets stolen on your way to work).

Renters insurance protects more than your belongings--you get medical payments for your guests and liability coverage as well. If your dog, for example, bites a visitor to your home,  you could end up paying out-of-pocket for your guest's medical costs and other damages if you don’t have renters insurance. Even if you and your dog are not at fault, you may have to defend yourself in a lawsuit. With renters insurance, you have less to worry about.

Cost of renters insurance

According to NIAC, the average renters insurance policy costs just $188 per year.

Considering the potential high cost of bad luck, and the relatively low cost of protecting yourself and your belongings, renters insurance is a bargain.

The table below shows the average cost of renters insurance for different levels of coverage.

renters insurance

Source: NAIC.ORG

Saving on personal property insurance costs

There are several factors that determine your rate for contents insurance:

  • The amount of coverage needed
  • The quality of coverage (replacement cost on contents insurance versus actual cash value, the inclusion of inflation protection, etc.)
  • Your history of filing claims
  • Your credit rating
  • Your deductible
  • Your location

If you own or rent in an area subject to expensive hazards--crime, catastrophic weather, or fire danger, your rates are likely to be higher. If your neighbors file frequent claims, even if you don't, your rates may be higher. If your home is not well-maintained or is very old or in poor condition, you may pay more.

Improve your property

While you can't change your home's location easily, you can maintain or upgrade it. Make improvements that could make your home safer and lower your premiums. For example, adding storm shutters, reinforcing your roof, or modernizing your heating, plumbing and electrical systems. You may realize significant discounts for increasing your home security or installing fire sprinkler systems.

Improve yourself

Keep an eye on your credit rating, and if it improves significantly, ask for a premium reduction. Keep claims to a minimum--if you filed one in the last 3 to 5 years, your rate may be higher. Once you put some time between you and your last claim, however, request a discount for not filing claims.

Compare and save

It's smart to comparison shop and review your homeowners coverage each year; there are many items to consider when buying homeowners insurance. Ask about discounts for switching insurers, for staying with your current insurer, for bundling your policies, for increasing your deductible, for being retired or for being in your profession (teachers, doctors and others may receive discounts--ask).

Personal property insurance quotes

Once you know the type and extent of the insurance coverage you want, get a few quotes from different insurers for the same level of coverage and with the same bells and whistles. You can shop for home insurance online and make an informed decision.