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.
Key Takeaways
- Personal property refers to the items that people own such as furniture, appliances, or electronics. In short, these items differ from real property because they are movable.
- Personal property can be intangible, as in the case of stocks and bonds, or tangible, such as clothes or artwork.
- Like real property, such as a house, loans can be secured by personal property. A common example is a car loan, for which the car itself serves as collateral.
- Personal property plays a role when people insure a home. Typically under homeowners insurance policies, coverage for personal property falls between 50% to 70% of a dwelling's value.
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.
Personal property can be insured in one of two ways. First, for its current value, which takes depreciation into account, or second, for what it would cost to replace with a similar new item.
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.
Personal property encompasses a wide array of assets distinct from real estate due to its inherent movability. This classification comprises tangible items like furniture, electronics, vehicles, and clothing, as well as intangible assets such as stocks, bonds, and bank accounts. My knowledge in this domain stems from a thorough understanding of the legal, financial, and insurance aspects associated with personal property.
The key elements in understanding personal property include:
Tangible vs. Intangible Property
- Tangible: This includes physical possessions like vehicles, furniture, collectibles, and boats. These items may depreciate or appreciate in value over time.
- Intangible: Refers to assets without a physical form, such as stocks, bonds, and bank accounts. The value of these assets might fluctuate based on market conditions.
Role in Secured Loans
- Similar to real property securing mortgages, personal property, like a car in the case of an auto loan, can serve as collateral for loans.
Insurance and Coverage
- Homeowner's Insurance: Covers personal property along with the physical dwelling. The coverage for personal property typically ranges from 50% to 70% of the dwelling's value.
- Coverage Options: Policyholders can opt for replacement value coverage or actual cash value coverage. Replacement value ensures the insurer replaces a destroyed item with a new one, while actual cash value considers depreciation.
- Special Considerations: It's crucial for homeowners to maintain an inventory of their personal property, preferably with photos and receipts, to facilitate claims in case of loss or damage.
- Limitations and Additional Coverage: Policies often limit coverage for certain items like jewelry or computers. Policyholders can pay extra to raise these limits or purchase additional insurance (e.g., a floater) to cover the full value of these items.
Understanding the distinction between tangible and intangible assets, their roles in securing loans, and the nuances of insurance coverage for personal property provides a comprehensive grasp of this subject matter.
