Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 7, 2021

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A homeowner’s insurance policy is designed to protect the average homeowner against the property and liability exposure that results from homeownership.

There are millions of homes in the U.S. As a result, insurers have devised some basic policy forms with equally basic coverage that adequately cover the “average” home.

(How to read a homeowners insurance policy.)

The property section of the homeowner insurance is pretty straightforward. The coverage limits on the policy are typically derived by pre-determined percentages of the dwelling coverage amount. All this is based on a replacement cost estimate to rebuild the house as it is at the time of the loss.

For example, a home that’s insured for $200,000 would have the following coverage limits:

– Dwelling: $200,000 (replacement cost value)

– Other Structures: $20,000 – Typically 10 percent of the dwelling’s limit. Additional coverage must be requested.

Contents: $100,000 – Typically 50 percent of the dwelling’s limit. Additional coverage may be requested.

– Loss of Use: $60,000 – Typically 30 percent of the dwelling’s limit. Additional coverage may be requested in some cases.

Pretty simple, right? Maybe not.

Where do “sub-limits” come into play?

Insurance companies have seen it all and they keep detailed records of it! They study every insurance claim and try to make predictions about future claims using the collected data.

The more accurate their loss projections, the more accurate their pricing and the more money they make.

(How do insurance companies make money?)

Another result of the claims study process is the restriction of coverage in “areas” that tend to have the most claims. This could affect standard home claims or lead to heavier scrutiny of expensive items.

If and when insurers determine a particular type of loss is overly common, either by frequency or severity, they may apply coverage restrictions to try to limit their losses…particularly if the coverage in question is not something that’s common “across the board” for all insured.

One such example is the homeowner’s policy personal property sub-limit section. Using the example above, the average homeowner is likely under the impression their home’s contents (also referred to as personal property) are covered up to $100,000 no matter what.

Unfortunately, this is not the case.

For the record, renters insurance policies are subject to the same guidelines as the home policy when it comes to sub-limits. Home water damage losses fit into this category as well.

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What contents are subject to sub-limits?

It seems at some point, an insurance company can determine that there are certain “target” items in most homes that are pinpointed by thieves. You may be able to guess a few of those items without needing to read any further.

Insurance companies (all of them) place sub-limits of coverage on these particular items. No matter what your “Personal Property” limit is on your policy, these items are only covered for a pre-determined amount, and it’s much less. If you want to make sure certain high value items are covered, you would need to pay for additional coverage for those scheduled items. These could include:

  • Money, Gold, Coins – Coverage for these items is typically limited to $200 on a homeowner’s policy.
  • Water craft, trailers, jewelry, watches, furs, precious and semi-precious stones – You likely have a sub-limit of $1,500 on these items for this particular cause of loss (theft).
  • Firearms – Your personal weapons arsenal is covered for $2,500 on most policies.
  • Silverware – Also covered for $2,500 on the typical policy.
  • Business property (on premises) – Again, $2,500 is a common limit for this property.
  • Business property (off premises) – Take your show on the road and you may be limited to $500 in coverage if it’s stolen.

How can I get the right amount of insurance coverage?

This is, of course, the next logical question. All insurers will offer additional coverage for these items for an additional insurance premium. You have the option to purchase a flat amount of additional coverage or you can “schedule” items of particularly high value.

The cost varies by insurer, but is normally calculated at a fixed amount per $100 of value. For example, jewelry may be covered at $.40 per $100 of value.

Your $5,000 diamond ring may cost an additional $20 per year to cover. This is expressed as $5,000/$100 x $.40.

Remember though, a $5,000 ring already has $1,500 worth of coverage, so only an additional $3,500 in coverage may be necessary – if that’s the only piece of jewelry you own.

(Top 10 contents insurance claims)

You also have the option to purchase a personal articles floater policy (PAF), which will insure your valuables for more money and against more causes of loss. If you have questions about what your current policy includes or what could be added to your current policy, you can talk to a customer service agent with your insurer.

For example, the PAF will cover your items anywhere in the world, and may even offer coverage against a diamond coming loose and falling out of its setting – which is certainly not covered on the traditional homeowner’s policy.

Where can you find the right coverage for your personal property?

First time you heard of this? If it is; contact your insurance agent immediately and request information about your specific policy’s coverage limits for these items. We can help people buying a home and homeowners insurance for the first time or those who want to check out other programs to see if they could save money.

You can separate your options by the type of policy, coverage amounts, and many other factors. You can also look at covered perils for property damage and replacement.

Read more: Types of homeowners insurance.

(photo: Somma)