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Understanding Personal Property Coverage Under a Homeowner's Policy

When purchasing a homeowner’s policy, most people focus on the reconstruction value of their dwelling, usually based on the bank’s concern for the mortgage. Traditionally, a standard ISO HO-4 form homeowner’s policy will automatically set the coverage for contents (personal property) at 70% of the dwelling value. For example, if a home is estimated to cost $500,000 to rebuild, then the insurance carrier will normally set the Contents coverage (Coverage C) at $350,000.  That is where many stop thinking about this coverage until there is a loss, when the lack of information proves to be painful.

What exactly is covered under this $350,000 personal property insurance limit? More importantly, what isn’t covered?

The personal property section (Coverage C) of a typical homeowner’s policy begins with “We cover personal property owned or used by an “insured” while it is anywhere in the world.”  From that point on, the policy outlines the limitations and qualifications of how the coverage is granted:

Limitation #1: Your Contents In Other Properties You Own.

After granting worldwide coverage, the policy then follows with  “Our limit of liability for personal property usually located at an “insured’s residence", other than the “residence premises,” is 10% of the limit of liability for Coverage C, or $1000, whichever is greater.” An insured’s residence “other than the residence premises” could be a secondary home, a hotel room, a friend’s house, or any other temporary residence. The secondary owned home, however, is typically where this limitation can have a big impact.  Appliances, furniture, and other personal property at the second residence would all be subjected to this limitation in the event of a claim.  As such, property values at secondary locations should be increased via endorsement to ensure that the limitation does not affect them in the case of a claim.

Limitations #2: Special Limits of Liability.

There are certain valuables that insurers don’t want to cover without collecting an additional premium.  The following are some of these limitations:

ITEM LIMIT
Money, Gold & Silver $200
Securities & Valuable Papers $1,000
Jewelry Lost Due to Theft $1,000
Firearms Lost Due to Theft $1,000
Silverware & Other Plated Ware Lost Due to Theft $2,000
ANY Item Used for ANY Business Purpose at ANY Time Located at the Resident Premises. $2,500
ANY Item Used for ANY Business Purpose at ANY Time Located Away From Resident Premises. $250
(see policy for complete list)  

 

 

 

 

 

 

 

 

These special limitations can be circumvented by scheduling the particular item and it's full value on the Inland Marine section of the policy.

Limitation #3: Contents That Are Not Covered.

Next, the policy describes a list of items that it will not cover:

“We do not cover:"

  • Articles separately described and specifically insured in this or other insurance; (i.e, items scheduled on an Inland Marine Schedule. This is to prevent double coverage)
  • Animals, birds, or fish
  • Motor Vehicles
  • Aircraft and Parts
  • Property of roomers, boarders, and other tenants.
  • Property in an apartment regularly rented.
  • Business Data
  • Credit cards or fund transfer cards.

Limitation #4: What perils does the policy protect contents against?

Most policies provide the following list of perils that the contents are protected from:
  • Fire or lightning    
  • Theft
  • Windstorm or Hail    
  • Falling Objects
  • Explosion    
  • Weight of ice, snow, or sleet.
  • Riot or civil commotion.   
  • Sudden & accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system.
  • Aircraft
  • Freezing
  • Vehicles
  • Sudden and accidental damage from artificially generated electrical current.
  • Smoke
  • Volcanic Eruption
  • Vandalism/ Malicious Mischief
  • Accidental discharge or overflow of water or steam.
The policy will not provide coverage for damage to contents from any other peril that is not listed or specifically excluded.

Limitation #5:  Perils Not Covered.

Just as the policy defines what perils are covered, it also gives a list of causes of loss that it will not respond to:

  • Earth Movement
  • Water damage, meaning:
    • Flood, surface water, waves, tidal water, overflow of a body of water, or spray form any of these, whether or not driven by wind;
    • Water which back s up through sewers or grains or which overflows from a sump; or
    • Water below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure.
  • Power failure
  • Neglect
  • War
  • Nuclear Hazard
  • Intentional Loss
  • Acts or decisions, including the failure to act or decide, of any person, group, organization or government body;
  • Faulty, inadequate or defective:
    • Planning, zoning, development, surveying, siting;
    • Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
    • Materials used in repair, construction, renovation, or remodeling; or
  • Maintenance (lack of)

Some of the above excluded perils can be insured against via special endorsements or separate coverage forms.

Limitation #6: Replacement Cost Endorsement Conditions.

Most homeowner’s policies are endorsed to pay claims on a replacement cost basis, as opposed to actual cash value, which deducts depreciation.  The Replacement Cost endorsement is so common that it is often forgotten that it has its own set of conditions.  Certain items are not entitled to replacement cost coverage unless they are insured on an Inland Marine schedule as mentioned earlier:

  • Jewelry
  • Furs
  • Cameras    
  • Musical Equipment     
  • Silverware
  • Golfer’s Equipment.
  • Antiques            
  • Fine Arts
  • Articles of rarity or antiquity.    
  • Memorabilia
  • Articles not maintained in good or workable condition.
  • Articles that are outdated or obsolete and are stored or not being used.
SUMMARY

When it comes to protecting personal property on a homeowner’s policy, assumptions can be dangerous. Time should be taken to consider all personal property owned, where it is located, and the what the replacement values are.  Without this important information, a homeowners policy could be inadequately crafted. Summarily, property damaged or stolen in the future could either be under-insured or not insured at all.

It has been said that insurance carriers know that the average claimant can only remember 33% of their personal property after a loss.  Taking the time to take pictures or video of home and contents will pay dividends for any homeowner who suffers a future loss.

Chris Hawthorne is a Licensed Insurance Advisor, Licensed Insurance Broker TGA Cross Insurance, and is available to assist you.  If you have questions you would like to see addressed please contact him at 781-914-1038 or chawthorne@tgacross.com