What is Personal Property?
Personal property is a class of property that includes any asset other than real estate. The key differentiator between personal property and real estate (or real property) lies in its mobility; personal property is not fixed to a particular location. Unlike fixed property, personal property is generally not taxed.
Key Takeaways
- Personal property encompasses items like furniture, appliances, or electronics, differing from real property due to their movable nature.
- Personal property can be both intangible, such as stocks and bonds, as well as tangible, like clothes or artwork.
- Loans can be secured by personal property, similar to real property mortgages—common examples include car loans where the car serves as collateral.
- Your personal property is often a significant part of homeowners insurance, typically covered between 50%-70% of the dwelling’s value.
Understanding Personal Property
Personal property is also known as movable property, movables, and chattels. It is considered an asset, which a lender might take into account during a mortgage or loan application.
Personal property can be insured in one of two ways: at its current value, which factors in depreciation, or at its replacement cost for a similar new item.
Some personal property, like home appliances, clothing, and automobiles, depreciates over time. On the other hand, items such as artwork and antiques might appreciate in value.
Personal property can be categorized as either tangible or intangible. Tangible examples include vehicles, furniture, boats, and collectibles. Intangibles cover stocks, bonds, and bank accounts.
Just as some loans are secured by real property, others can be secured by personal property. Car loans, where the vehicle serves as collateral, are prime examples.
Personal Property and Insurance
Personal property comes prominently into play within homeowners insurance policies. These policies commonly cover not only the physical dwelling but also the homeowner’s personal property, labeled as the home’s “contents.”
Typically, the value of this personal property is based on a percentage of the dwelling’s value, usually between 50% to 70%. For instance, if it cost $200,000 to rebuild a home, the coverage limit for personal property might be about $140,000.
Homeowners usually have two coverage options for their personal property: replacement value or actual cash value. If replacement value is opted, the insurer is responsible for replacing a destroyed item with a similar new one. In contrast, actual cash value insurance only pays what the item was worth considering depreciation. Adding a recoverable depreciation clause can aid in getting both depreciated and replacement cash values.
For example, with replacement coverage, if a 10-year-old refrigerator gets destroyed in a fire, the homeowner will get enough money to buy a new refrigerator. Conversely, with actual cost coverage, only the current worth of the used refrigerator is paid.
Special Considerations
When personal property is lost, policyholders must file a comprehensive claim with their insurance, listing all lost items. Maintaining an inventory of personal property with photos and receipts and storing it off-premises is crucial for easy claiming.
Standard policies usually limit coverage for valuables such as jewelry and computers. For instance, jewelry coverage might be capped at $1,500. If the actual value of the jewelry exceeds this, the policyholder can pay extra to increase policy limits or buy additional insurance—often referred to as a floater—to cover the full value.
Related Terms: real property, homeowners insurance, collateral.
References
- Insurance Information Institute. “How Much Homeowners Insurance Do I Need?”
