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What Is Contents Insurance?

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Catherine Hiles
Updated September 11, 2022
4 Min Read

Whether you’re a homeowner, condo owner or renter, chances are you’ve heard about home contents insurance to cover your personal belongings. Home contents insurance is more commonly called personal property coverage and is designed to protect the belongings you keep inside your home.

How does contents insurance work?

Personal property coverage is one type of coverage often found in homeowners insurance, condo insurance, or renters insurance. While other types of coverage are designed for the dwelling itself or for liability, contents insurance is designed to cover your personal belongings.

Contents insurance generally covers personal property up to a percentage of the dwelling coverage on your homeowners insurance, so it’s essential to check with your insurer to understand what is covered. For renters, personal property coverage has its own limit since there is no dwelling coverage in a renters insurance policy.

What does contents insurance cover?

Contents insurance covers your belongings including electronics, clothes, jewelry and furniture. If your personal property is damaged by a covered peril such as a fire, theft or a windstorm, your contents insurance helps pay to replace the damaged or destroyed items. But as with other types of insurance coverage, you’ll most likely have to pay a deductible before your contents insurance will kick in to cover the item replacement. For example, if your $3,000 couch is destroyed in a fire and your deductible is $500, your insurance will reimburse you $2,500 to put toward the couch.

Contents insurance covers your personal property even if it’s not damaged or lost from your property. If your laptop is stolen from your car or hotel room while on vacation, your personal property coverage can help pay to replace it. Similarly, if you keep items in a storage unit and experience a theft, contents insurance should help replace the stolen items. However, there is often an additional coverage limit for property lost or damaged outside your home.

While your contents insurance usually covers most of your belongings, there are some exceptions and coverage limits you need to be aware of. A basic contents insurance policy typically does not cover expensive items, so you may require additional coverage or add-ons in order for these items to be protected. 

How much contents insurance do I need?

There is no one-size-fits-all coverage limit when it comes to contents insurance. That’s why making a home inventory before choosing a policy is essential in determining how much coverage you need. An inventory of your personal belongings can determine how much it would cost to replace everything you own and will therefore tell you how much coverage you need to buy. 

Many people use a spreadsheet for this where they can list the items and their replacement cost. From there they can add and remove items as needed. Once you know the approximate cost to replace everything, you can determine how much coverage you need. You may find that $50,000 is a good coverage limit, or you might decide to increase your limit to protect you further. The home inventory is important because a lot of renters and homeowners tend to underestimate the total value of their belongings, which could leave you in a tough spot if you had to make a major claim.

Additionally, certain items have limits within that total limit. For example, jewelry is typically limited to $1,500 per claim. To cover any expensive or specialized items you own, you can add endorsements to cover specific items, such as an expensive engagement ring or specialized sports equipment, ensuring those items are covered no matter what.

How much does contents insurance cost?

In general, the higher your coverage limit, the more you’ll pay in monthly premiums on your contents insurance policy. If you’re looking to save money, you might consider a lower policy limit on your contents insurance. But before making that choice, it’s smart to see just how much you can lower your coverage limits and still manage to replace your belongings if they are destroyed by a covered peril. You may be able to get away with a lower coverage limit if you’re willing to replace your items with less expensive or lower quality ones if needed.

Actual cash value vs. replacement cost coverage

There are two different ways to cover your belongings under contents insurance. You can insure your belongings for cash value or replacement cost. If you choose cash value, your insurance will reimburse you the depreciated amount of the item, less your deductible. Choosing this coverage typically means your insurance premiums are lower, but you’ll likely need to pay more out of pocket to replace your belongings. For example, if you bought your couch for $3,000 10 years ago, it may have depreciated and only be worth $1,500 now. With that same $500 deductible, that would mean you’d receive $1,000 from your insurance provider to replace the couch. 

Replacement cost coverage insures your belongings for the amount it would cost to replace them with a comparable item in today’s market. So that $3,000 couch would still be insured for $3,000, even though it’s 10 years old. Insuring your belongings this way means you’ll probably pay more in premiums, but it could save you a lot of money if you ever make a claim on your personal property coverage.

Where can I get contents insurance?

You can buy contents coverage as part of a homeowners or renters insurance policy from any insurance provider. If you currently hold any type of insurance, such as car insurance, it’s worth checking with your provider to see whether they offer any loyalty or bundling discounts to current customers. It’s also a good idea to shop around even if you already have an insurance provider, as you may be able to find cheaper coverage elsewhere. Just make sure your new policy has the coverage you need before signing any paperwork.