What is contents insurance?
Last updated: January 1
The good news is that renters, homeowners and condo insurance policies typically include coverage for the contents of your home. This coverage is sometimes known as "contents insurance," but is usually described in most insurance policies as personal property coverage.
Contents insurance helps pay to replace or repair your personal belongings if they're stolen or damaged by a covered peril, such as a fire. So, if someone breaks into your home and steals your laptop, or your clothing and furniture are ruined in a fire, you may find that contents insurance helps cover the loss.
It's important to understand the type of coverage you have and how much your policy may pay for a covered claim so you can be better prepared if you ever need to file a claim. Read on to learn about how contents insurance works, coverage limits and some things to consider.
Property coverage: Actual cash value vs. replacement cost
When you purchase a homeowners, renters or condo insurance policy, your insurer will typically allow you to choose between two types of personal property coverage to help protect the contents of your home: actual cash value and replacement cost.
- Replacement cost coverage helps reimburse you for the cost of replacing a damaged item with one of similar type and quality.
- Actual cash value coverage usually pays you the cash value of the contents you insured, but factors in depreciation of the item, the Insurance Information Institute (III) says.
Here is an example of how these two coverages work. Say you file an insurance claim after your five-year-old television was stolen. A contents insurance policy with actual cash value coverage will only reimburse you for a percentage of what you paid for it. Meanwhile, a policy with replacement cost coverage would likely provide enough coverage for you to purchase a replacement of the same quality at today's value.
Keep in mind that if you choose replacement cost coverage, your policy premium may increase.
So, how do you know how much coverage — and what type — is right for you? One way to start is by creating an inventory of your belongings. In addition to listing or photographing your belongings, include details like serial numbers on electronics, makes and models, and year of purchase, suggests the III. It's also a good idea to attach any official documentation, such as receipts and appraisals, to your home inventory. Documenting the stuff you own, from electronics to shoes, can help give you a clearer picture of what you own and how much it's worth. That may help you decide how much personal property coverage you need, and may also come in handy if you need to file an insurance claim.
Contents insurance coverage limits
Whether you choose replacement cost coverage or actual cash value coverage, you will have a coverage limit and a deductible. A limit is the maximum amount your policy will pay toward a covered claim. A deductible is the amount you pay out of pocket before your insurer will help pay toward a covered claim. You may be able to choose your coverage limit based on the value of your belongings — for example, $50,000 of contents coverage. You may also be able to choose your deductible amount when you purchase coverage — $500, for example. This means if your belongings were destroyed in a fire, your insurer would pay up to $50,000, minus your $500 deductible, to help replace your stuff.
However, coverage limitations may apply for certain valuable items. Standard contents insurance typically limits coverage for certain types of valuable belongings like jewelry and furs, says the III. For example, say your diamond ring is stolen. While your personal property coverage may be higher than the value of the ring, you may find that a standard policy provides more limited coverage — for example, the policy may only pay up to $1,500 when a piece of jewelry is stolen.
This is where scheduled personal property coverage may help. Scheduled personal property —often referred to as rider, floater or endorsement — is an optional coverage you can purchase to provide additional protection for certain valuables such as art, antiques, furs, jewelry or musical instruments. To schedule an item, you'll typically need to have the item professionally appraised, according to the III. Other benefits to scheduling items may include coverage for a greater number of risks and no deductible payment if you need to file a claim.
Contents insurance and moving
Contents insurance typically covers your personal belongings while they're in your home or in transit to a new home, according to the III. However, this coverage usually doesn't pay for damage to your belongings when it was caused by movers —whether when they were packing the items or physically moving them. It's a good idea to talk to your insurance agent when you're buying a new home to understand how your belongings are covered during a move. It's also important to remember that you will need a new homeowners insurance policy when you purchase a new home. This is because a new home has different risks and needs that may require different coverages.
If you move any belongings into a storage unit, contents insurance may provide protection for the items against certain perils, such as fire or theft. However, keep in mind that coverage limits may be lower for items that are off premise. For example, if your homeowners insurance policy has a $75,000 personal property coverage limit, the coverage for your belongings kept offsite may be capped at $7,500. Be sure to check with your policy or consult with your agent to understand how much coverage you have for these items.
With a better understanding of how insurance helps protect the contents of your house or apartment, you can be prepared to select the coverages that are right for your situation.