Homeowners Insurance Formula for Estimating Personal Property Value

Take an inventory of your personal property when buying homeowners insurance.

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Home insurers rely on data-rich variables when they compute the amount of coverage for each homeowner's personal property. These variables include an item's depreciated value, replacement cost and certain policy options. But generally speaking, home insurers cover your personal property for 50 or 75 percent of the amount your home is insured for. So if you have $200,000 of homeowners insurance, your personal property would be covered for $100,000 or $150,000.


Even if the actual value of your personal property is considerably less than its insured value, home insurers generally won't underwrite the premium for less than 50 percent of the insured amount of your home.

Covering the Contents

Standard homeowner policies pay personal property claims at actual cash value, which is the replacement cost of your property based on its current used condition. You can get full replacement cost coverage but it costs 10 to 15 percent more than a basic policy. This type of coverage pays you the full amount it costs to replace the item with a new one, minus your deductible.

Homeowner insurance policies cover your personal property as "the contents" of your dwelling. The policy insures your personal possessions, such as furniture, appliances, jewelry, clothing and more, even if the items are not in your home. Typically, homeowners coverage insures all your possessions unless specifically excluded. The normal exclusions include pets, vehicles such as cars and airplanes, and car stereos. Check the fine print of your policy for any other exclusion.

Determining the Actual Value

Once you inventory your personal property, you need to determine its actual value. Actual value factors in the wear and tear that causes a used item to depreciate or lose value over time. To calculate the actual cash value, or ACV, of an item, take the replacement cash value, or RCV, which is the cost to purchase the item now, and multiply it by the depreciation rate, or DPR, as a percentage, and the age of the item.

Then, subtract that value from the RCV. ACV=RCV - (RCVDPRAGE). For example, a three-year-old dishwasher that costs $500 (ACV) to replace and has a depreciation rate of 12.5 percent (DPR), or .125, has an actual cash value of $312.50 {500-[500(.125)3]=312.50}. You can find homeowners’ depreciation calculators online to help you with this.

Checking the Replacement Value

If you want more than the actual cash value, you need to add an endorsement or special option to your policy. With this provision, the insurer reimburses you the the amount it costs to replace the item less your deductible. The deductible is the amount you pay before the company pays a claim on the remainder of the loss. So in the previous example, you receive $500 minus the deductible to buy a new dishwasher.

Paying More For Benefits

Replacement value benefits usually add about 10 to 15 percent to the cost of your premium, but may come with no cost on some policies. If you have a lot of recently purchased items, this may make sense. Otherwise, the cost of the higher premium may outweigh the benefit of the endorsement. Also, if you choose replacement value, the insurer may not go above a 70 percent coverage limit for your personal property, according to Consumers' Checkbook.