Laura answers a listener's question about protecting valuable personal property not fully covered by homeowners or condo insurance.
Laura answers a listener's question about protecting valuable personal property not fully covered by homeowners or condo insurance.
Transcript: https://money-girl.simplecast.com/episodes/do-i-need-personal-articles-policy-pap-insurance/transcript
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Welcome back to Finance Friday, another special edition of Money Girl, where I answer your burning money questions! Today's topic comes from Leanne, who says:
“My husband and I recently bought a condo and got insurance recommended by our mortgage lender. But when I reviewed it, I was surprised to find that it only covers a maximum of $1,000 for jewelry. If we have jewelry and watches worth much more, should we get jewelry insurance or a personal articles policy?”
Thanks for your question, Leanne! I’m glad you reviewed your home insurance and want to protect your belongings. This post will review what possessions are covered in a standard home or condo insurance policy and how to purchase more coverage when needed.
Welcome back to episode 935 of Money Girl–I appreciate you spending time with me! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, a Substack newsletter.
You can learn more, ask questions, and sign up for the Money Stack at LauraDAdams.com. You can subscribe for free or become a paid member with access to live educational events!
What is homeowners insurance contents coverage?
When you purchase standard homeowners insurance, known as an HO-3 policy, or condo insurance, an HO-6 policy, it covers your personal belongings up to certain limits, after a deductible. That part of your insurance is called contents coverage.
The problem is, contents coverage may not cover everything you own, so I’m glad Leanne asked about the best way to get more personal property coverage, especially for her valuable jewelry.
If you have a standard homeowners policy, the contents coverage is usually a percentage of your dwelling coverage. Dwelling refers to the physical structure of your home, as well as any outbuildings.
For instance, if you have $300,000 in dwelling coverage, your personal property coverage might be in the range of 20% to 50% of that amount. Therefore, your total coverage could range from $60,000 to $150,000, depending on the specific policy you choose.
Most standard homeowners policies cover your personal property against "named perils." That means your possessions could be repaired or replaced if something happens that’s specifically named in your policy, such as:
Another often-overlooked benefit of home insurance is that your belongings are insured anywhere in the world, up to certain limits, known as off-premises coverage. For example, if your jewelry, laptop, or camera gets stolen or damaged while you’re on vacation or storing them off-site, you generally have some coverage.
However, off-premises contents insurance is typically capped at a small percentage of your dwelling coverage. For instance, if you have $300,000 in dwelling coverage and 10% of off-premises coverage, your maximum for personal property claims away from your home would be $30,000.
LISTEN ALSO: Home and renters insurance–5 things you should know
What is condo insurance contents coverage?
Leanne is a condo owner, so her coverage for personal belongings is a little different. That’s because when you own a condo or townhome, the homeowners association typically purchases a master insurance policy that covers the building’s exterior and any common areas. Unit owners are only responsible for what’s inside the building, like the interior walls and structural improvements.
Similar to homeowners, a condo policy includes contents coverage for your personal belongings, after you meet a deductible. However, the amount is generally chosen by the unit owner, rather than being a percentage of the entire multi-unit dwelling.
Like a homeowners policy, condo personal property coverage typically covers "named perils" such as theft, fire, windstorm, and certain types of water damage. It typically includes worldwide coverage for your personal belongings, similar to a homeowners policy, with limits for off-premises losses.
What are sub-limits for contents coverage?
Both standard homeowners and condo policies have sub-limits for categories of personal belongings. Understanding them is essential for protecting your most valuable possessions.
Here are examples of items that typically have insurance sub-limits:
This isn’t a comprehensive list of possible sub-limits; please refer to your insurance policy for details. You can see that even with a high amount of personal property coverage, your sub-limits could leave you extremely underinsured.
Leanne didn’t mention the value of jewelry and watches in her household, but let’s say it’s $10,000 and she has a $1,000 deductible. If all of it were stolen, the most she could receive, after paying her $1,000 deductible, is $1,000. In other words, the sub-limit for jewelry would leave her with $0.
What is a personal article policy (PAP)?
If you have valuable belongings that exceed the sub-limits of your homeowners or condo insurance, you should consider purchasing extra coverage. While you can purchase special insurance, like a jewelry policy, it’s typically less expensive to get a personal article policy, or PAP.
A PAP allows you to list out or “schedule” individual items to ensure they’re covered for their appraised value. You can include valuables such as jewelry, furs, fine art, collectibles, musical instruments, silverware, sports equipment, and any other unique items not typically covered by a standard home or condo insurance policy.
Coverage in a PAP typically gives you worldwide “all-risk” or “open perils” coverage, which is much broader than only for named perils. That’s critical if you travel with expensive items that could be lost, damaged, or stolen. Whatever belongings you choose to insure, they’ll be covered for damage or theft inside your home, in your car, at a storage facility, or in another country where you’re vacationing.
Every insurance policy is different, so be sure to understand any peril exclusions that may not cover your items. For instance, a PAP may not cover regular wear and tear or damage caused by pests.
How much does a personal articles policy (PAP) cost?
A personal articles policy may cost about $1 for every $100 of coverage annually. For instance, if you need $50,000 of total coverage, a ballpark estimate could be about $500 per year. Since insurance costs vary, consider getting several estimates to compare.
A benefit of purchasing a PAP is that it typically doesn’t have a deductible. So, if you file an approved claim, you receive the full amount without any out-of-pocket costs.
You can opt for PAP coverage to automatically adjust for inflation. However, it’s wise to review your policy periodically and have any high-value items reappraised by a professional, allowing you to adjust your coverage as needed.
How can I get a personal articles policy (PAP)?
Leanne, I recommend creating a list of your valuable belongings, including photos and estimates of their value. Then, review your home or condo insurance policy to determine if you have sufficient coverage in the sub-limit categories and amounts.
If you’re like Leanne, with jewelry or other valuables, like guns, sporting equipment, electronics, or fine art, worth significantly more than your home or condo coverage sub-limit, you likely need a personal articles policy. You can get quotes from your home insurance company and other carriers to compare annual premiums.
Insuring personal items is a personal decision because some items you own, such as an heirloom necklace passed down from your grandmother, can never be replaced. Its market value may be significantly less than the sentimental value you give it.
If you’re unsure whether to insure something valuable, ask yourself how you’d feel if it were lost, stolen, or destroyed. For instance, if you’d be upset about losing your wedding ring or watch and couldn’t easily afford to replace it, consider scheduling it on a PAP. Speak with an insurance representative or broker if you have questions or unique belongings you want to cover from potential losses.
Leanne, if your jewelry is the only belonging that exceeds your condo sub-limit, it might be worthwhile to get a jewelry insurance quote. But most people find that they’re underinsured in several categories, making a personal articles policy a better option.
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