Personal Property

What Is Personal Property?

Personal property is a type of property that includes any asset that is not real estate. The difference between personal property and real estate, or real property, is that personal property is movable; that is, it is not permanently fixed to one location. It is not generally taxed in the same way that fixed property is.

Understanding Personal Property

Movable property, movables, and chattels are other terms for personal property. Because it is regarded as an asset, it may be considered by a lender when a person applies for a mortgage or other loan.

• There are two ways to insure personal property. First, for its current value, which includes depreciation, or second, for the cost of replacing it with a comparable new item.

Some types of property, such as home appliances, clothing, and automobiles, lose value over time. Artworks and antiques, on the other hand, may appreciate in value. Lenders may consider the total current value of a prospective borrower's personal property in addition to their real property when determining creditworthiness.

Personal property can be classified as tangible or intangible. Vehicles, furniture, boats, and collectibles are examples of tangible personal property. Intangible personal property includes stocks, bonds, and bank accounts.

Some loans, such as mortgages, are secured by real property, such as a house, while others are secured by personal property. Car loans are a common example, where the vehicle serves as collateral for the loan.

Personal Property and Insurance

When people insure their homes, they also insure their personal property. A homeowner's insurance policy typically covers not only the physical dwelling but also the owner's personal property, also known as the "contents" of the home.

The value of the policyholder's personal property is typically based on a percentage of the dwelling's value, ranging from 50% to 70%. For example, if a home would cost $200,000 to rebuild if it burned down, the policy might set the coverage limit for the owner's personal property at 70% of that amount, or $140,000.

Homeowners can typically choose between two coverage options for their personal property: replacement value or actual cash value. If the policy includes replacement value, the insurer is required to replace a destroyed item with a comparable new item. With actual cash value, the insurer is only required to pay what the item was worth after depreciation.

So, if a refrigerator is destroyed in a house fire, a homeowner with a 10-year-old refrigerator and replacement coverage should receive enough money to purchase a new refrigerator, whereas a homeowner with actual cost coverage would receive whatever the insurance company determined a used 10-year-old refrigerator was worth.

Special Considerations

Policyholders must file a claim with their insurance company describing what they lost if their personal property is destroyed. As a result, homeowners should make an inventory of their personal property, ideally with photos and receipts, and store it safely off-site in case it's ever needed.

Certain types of personal property, such as jewelry and computers, are also excluded from coverage under homeowners policies. For example, a policy may limit jewelry coverage to $1,500. Policyholders whose jewelry is worth more than that can pay an additional fee to increase the policy's limits or purchase additional insurance, known as a floater, to cover the full value.