Personal Property: Definition, Examples, and Role in Insurance

What Is Personal Property?

Personal property is a class of property that can include any asset other than real estate. The distinguishing factor between personal property and real estate, or real property, is that personal property is movable, meaning it isn't fixed permanently to one particular location. Typically, personal property is not taxed like fixed property.

Understanding Personal Property

Personal property is also known as movable property, movables, and chattels. Because it is viewed as an asset, it may be taken into consideration by a mortgage lender when someone applies for a mortgage or other loan. 

Some kinds of property, such as home appliances, clothing, and automobiles, tend to depreciate in value over time. Other types, such as artworks and antiques, may appreciate in value. When assessing a would-be borrower's creditworthiness, lenders may look at the total current value of their personal property added to their real property.

Personal property can be characterized as either tangible or intangible. Examples of tangible personal property include vehicles, furniture, boats, and collectibles. Digital assets, patents, and intellectual property are intangible personal property.

Just as some loans—mortgages, for example—are secured by real property like a house, some loans are secured by personal property. A common example is car loans, where the vehicle serves as collateral for the loan.

Personal Property and Insurance

Personal property also comes into play when people insure their homes. A homeowners insurance policy typically covers both the physical dwelling and the owner's personal property, often referred to as the home's "contents."

It's important to create a list of your personal belongings, which might include:

• Rugs
• Decor
• Dishes
  
• Jewelry
• Clothing
• Furniture
• Appliances
• Electronics
• Garage items, including tools, lawnmower, and snowblower

Insurance Coverage

Most homeowners policies base the value of the policyholder's personal property on a percentage of the dwelling's value, typically 50% to 70%. For example, if a home costs $200,000 to rebuild following a fire, the policy might use 70% of that figure, or $140,000, as the coverage limit for the owner's personal property.

Replacement Value vs. Actual Cash Value

Homeowners policyholders can typically choose between two options for covering their personal property: replacement value or actual cash value. If the policy provides for replacement value, the insurer would be obligated to replace a destroyed item with a similar new item.

With actual cash value, the insurer may pay you the item's value after depreciating it. In other words, the item's value is reduced to reflect its age, which means you'll likely be paid less than the cost to replace it. You can also add a recoverable depreciation clause to your policy, which pays out the depreciated and calculated replacement cash values.

For example, if a 10-year-old refrigerator is destroyed in a house fire, a homeowner with replacement coverage should receive enough money to buy a new refrigerator. However, a homeowner with actual cost coverage would receive an amount based on the insurance company's estimated value of a 10-year-old refrigerator.

Special Considerations

In the event that their personal property is destroyed, policyholders must file a claim with their insurance company describing what they lost. For that reason, homeowners should make an inventory of their personal property, ideally with photos and receipts, and store it safely off-premises, just in case it's ever needed.

Homeowners policies limit coverage for certain types of personal property, such as jewelry and computers. For example, a policy may limit its coverage of jewelry to $1,500. Policyholders whose jewelry is worth more than that can pay extra to raise the limits in their policy or buy additional insurance, often called a floater, to cover its full value.

The Bottom Line

Personal property are movable items that people own. Personal property can be intangible, such as stocks and bonds, or tangible, such as clothes or artwork. Homeowners insurance typically covers personal belongings such as furniture, appliances, clothes, and electronics. To receive compensation from an insurance claim, create a household inventory list with pictures of the items to send to your insurer.