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; that is, it isn't fixed permanently to one particular location. It is generally 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 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 kinds, 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. Stocks, bonds, and bank accounts fall under 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 homeowner's insurance policy typically covers not just the physical dwelling but also the owner's personal property, often referred to as the home's "contents."

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 would cost $200,000 to rebuild if it burned to the ground, the policy might use 70% of that figure, or $140,000, as the coverage limit for the owner's personal property.

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 is only expected to pay what the item was worth after taking depreciation into account. You can also add a recoverable depreciation clause to many policies. With this clause, you'll receive the depreciated and calculated replacement cash values.

So, for example, if a refrigerator were destroyed in a house fire, a homeowner with a 10-year-old refrigerator and replacement coverage should receive enough money to buy a new refrigerator, while a homeowner with actual cost coverage would receive whatever the insurance company determined a used 10-year-old refrigerator to be worth.

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 are well-advised to 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 also 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.