Homeowners' insurance policies cover both the dwelling itself and the personal property of the insured. Some may expect theirs to fully cover all of their personal property at their actual cash value (or replacement cost with the proper endorsement). This is not the case, however, for certain categories of property. Expensive items, such as jewelry, furs, and precious or semi-precious stones, for example, typically have specific coverage limits (see An Intro to Insurance Sublimits to learn more).
The problem is that for many insureds, the available coverage is insufficient. For those who own antique or heirloom items valued at significantly higher amounts, coverage levels tend to provide very inadequate compensation. In addition, unless the policy is endorsed otherwise, personal property is covered only for specific named perils. If a non-covered loss occurs, then the insurer does not make any indemnity payments. Therefore, to ensure your valuables are protected, look into how personal property floaters can help provide additional protection for expensive belongings.
Luxury Goods and Property Categories Covered
Here is an example of what would happen in the case of the loss of a luxury good covered by a typical homeowners' policy (read 5 Types of Coverage Home Insurance Provides to learn what a standard policy covers). Suppose you purchase a new watch for $8,500, and it is then stolen from your home. Accounting for depreciation, it is now worth $6,500, but your policy's coverage limit is only $1,500. This means you would not receive any more compensation beyond $1,500 even though the loss is far more substantial. That can mean a big loss for an unaware homeowner.
Losses of this type have led to the development of personal property floater. This type of insurance is designed to cover valuable articles in any location. The standard category covered includes jewelry, furs, cameras, musical instruments, silverware, golfing equipment, fine artwork, and collections of stamps and coins. In addition, these categories are scheduled. This means that each item is described in policy and has a value assigned. Blanket coverage, which assigns a limit to all of the items, is also available for cameras, golfing equipment, silverware, fine artwork and stamp and coin collections.
Coverage Type, Limits, and Details
Silverware as defined in a personal property floater policy includes silver, gold, or platinum (or plated) flatware, hollowware, tea sets and trays. Moreover, golfing equipment not only includes golf clubs, bags, and clothing, but also the insured's regular clothing stored in a locker at the golf course. It also extends coverage to golf balls lost due to fire and theft.
In some instances, you can opt for warranties to reduce the policy premium. In the case of coin or stamp collections, for instance, you may agree to keep at least 75 percent of the collection in a fireproof safe or vault with a combination lock when not in use or on display in an exhibition. Similarly, for jewelry, you can warrant that certain items are stored in a safe deposit box in a bank vault and agree to notify the insurer when you remove a piece of jewelry and pay an additional premium during that time frame.
If the personal property floater covers already existing categories of property, any new items you acquire become automatically covered to a specified limit. In the case of jewelry, furs, cameras and musical instruments, the limit is 25 percent of the total amount of coverage in each category or $10,000, whichever is less, and you must add the items to the schedule within 30 days. The limit for fine artwork is 25 percent of the category coverage, with the addition to the schedule required within 90 days.
Depending on the policy form, losses are settled in one of two ways. Under the standard form, the valuation of the item is established at the time of the loss, and the insurer will pay the lesser of the actual cash value, the cost to repair the item, the cost to replace the item with one substantially identical, or the limit of insurance less the deductible. In the event the loss involves a pair or set of items, other than fine artwork, the insurer will either repair or replace the item damaged, or pay the difference in actual cash value between the value before and after the loss. In the case of fine artwork, the insurer would pay the actual cash value, and the insured would be required to surrender the remaining parts of the pair or set.
Under the agreed value form, the amount the insurer pays is established at policy inception. Should a loss occur, the insurer will pay the insured the value, and the insured will surrender any damaged property. If the insured wants to keep it, they may buy it back from the insurer at an agreed price.
Personal property floaters can be a helpful risk management tool. They provide broader coverage for the aforementioned categories of items than a homeowners' policy, and they can be designed to cover certain categories of expensive items for a value that actually meets the insured's needs.