How to determine personal property value for insurance

Personal property coverage is an important part of insuring the home. Most home insurance providers include some form of personal property protection in their policies.

This coverage is designed to protect the possessions inside the home—anything from furniture and appliances to jewelry and electronics. Different home insurance policies offer varied levels of protection for the homeowner’s personal property, and many allow people to choose their own personal property coverage limits. 

Deciding on the amount of personal property coverage that’s needed for you can be an involved process. It requires homeowners take a careful look at the value of their personal items and how much money it would take to replace those items. 

In this article, we’ll show you how to choose the right level of personal property coverage for your home insurance policy.

What is personal property coverage?

Personal property coverage is one of the standard coverages commonly included in most home insurance policies. It’s used to replace or repair damaged possessions after a covered peril occurs—such as bad weather or theft.

In terms of what’s covered, home insurance policies fall into two categories: named peril and open peril. 

A named peril policy will only cover perils explicitly named in the policy. Fire and vandalism are two of the most common named perils.

An open peril policy covers all perils, unless explicitly excluded from the policy. Earthquakes and flooding are two perils commonly excluded from many home insurance policies, and may require separate insurance policies altogether.

It’s important to know exactly what’s covered in your home insurance policy as it will only replace your personal property if damaged by a covered peril—and even then, the policy will have strict limits on the amount it will pay. 

How much personal property coverage do I have?

To find how much personal property coverage you have, look at the home insurance policy declaration page. This will be the first page in the insurance policy documents you receive after signing up for a policy.

The declaration page will break down all of the coverages included in the policy, typically in the middle of the page, including personal property coverage.

The amount of personal property coverage you have is the limit of coverage that’s stated in the declaration page. The average personal property coverage limit is anywhere from 20 to 50 percent of the policy’s coverage limit for the structure of the home.

For instance, if the home insurance policy has a $250,000 limit for the home’s structure, and the personal property coverage is set at 50 percent of that, then the policy will protect personal items up to $125,000 in total value.

The value of personal property is determined in two different ways: actual cash value (ACV) and replacement cost value (RCV).

Actual cash value replaces damaged or destroyed personal property at the value it’s actually worth, factoring in depreciation. For example, a TV purchased 3 years ago for $700 may only be worth $400 or less today. Actual cash value would only pay for the TV’s value today, not the original purchase price. 

In contrast, replacement cost value replaces personal property at the true value it costs to replace the item, which is usually equal to the original purchase price. Keep in mind that replacement cost coverage is almost always more expensive than actual cash coverage, due to the higher payout associated with replacement cost. On the other hand, it ensures you pay less out of pocket to replace the item at current replacement value.

The last coverage value you’ll need to know is the deductible amount. 

Every coverage in a home insurance policy will have a deductible amount that must be met before the coverage kicks in and pays out on the claim. Generally speaking, the higher the deductible, the lower the premium cost—and vice versa.

If your personal property coverage has a deductible of $1,000, this is the amount that you are responsible for and will be deducted from your payout before it is paid out to you.

How much personal property coverage do I need?

Determining the amount of personal property coverage you need starts with a home inventory. 

Inventory of your home requires going through all of your valuables and deciding the net worth. This is an involved process that should not be rushed. Anything you forget or evaluate incorrectly could lead to significant financial impacts down the road.

Go through each personal item you want to insure and attach a realistic dollar value to it. Personal property includes all appliances, electronics, cookware, clothing, firearms, furs, furniture, jewelry, power tools, silverware, sport and outdoor equipment.

After all values are determined, add everything up. 

The total dollar amount of your personal property will be the deciding factor in how much personal property coverage you need. 

Compare the worth of your home inventory to the amount of personal property coverage that’s included in the homeowners insurance policy—does the home inventory dollar amount exceed the personal property coverage limit?

If so, then you might need to purchase additional personal property coverage. 

Most home insurance providers offer policies that allow additional coverages to be included at extra cost. These additional coverages are also known as endorsements, or changes to the standard policy.

Extra personal property coverage allows policyholders to increase the coverage limit. Some home insurance companies even allow extra coverage for specific categories of personal property.

For example, if you have a large collection of valuable jewelry, then you could increase the coverage limit for jewelry in your policy. But that coverage limit only extends to jewelry—all other personal property limits are left as is. 

An accurate home inventory is also important to avoid buying too much personal property insurance. If you purchase higher coverage limits that exceed the value of your personal property, then the policy’s premium will rise, plus you will receive no additional financial benefit. 

The takeaway: An accurate home inventory will determine the right amount of personal property coverage

• Most home insurance policies include personal property coverage
• Some homeowners need more coverage for personal property than what comes standard in the insurance policy 
• Most home insurers offer additional personal property coverage
• An accurate and detailed home inventory will tell you how much personal property covered is needed

A good way to think about personal property coverage is what would happen if everything in your home is destroyed. Is your policy’s coverage limit enough to replace it? If not, can you handle the additional expenses out-of-pocket? 

If the personal property coverage limit listed in your home insurance policy is low and replacing your valuables would put you in financial jeopardy, then it might be a good idea to buy additional personal property coverage.

Julian Dossett

Julian is a freelance writer for Coverage.com, where he writes about auto and home insurance with an eye toward consumer advocacy. His work has appeared at The Simple Dollar, Bankrate, Reviews.com, Blockchain Beach and MSN.com. He’s currently based in New Mexico.

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