Understanding Personal Insurance

Updated on
September 15, 2022

What is personal (lines) insurance?

Personal (lines) insurance refers to insurance policies that protect individuals from potential property and liability losses. The term “line of insurance” comes from the insurance industry and means “the sale of one type of insurance”. For example, when a consumer purchases auto or jewelry insurance, we say they have “bought one line” of insurance.

Personal insurance allows consumers to transfer the risk of a future loss to an insurance company. When a loss occurs, the insurance company keeps the commitment to repair or replace their property. The policyholder is asked for two things in return

  1. Pay an insurance premium periodically, prior to filing any claims.
  2. Pay a deductible (except for $0-deductible policies) at claim time.

For example, a consumer with an auto policy will pay their insurance company a certain amount periodically. If their car is stolen or damaged in an accident, the insurance company will pay for the covered loss, withholding the agreed-upon deductible.

When it comes to personal insurance, there are two coverage types to note:

  1. Property coverage – this is designed to replace or repair covered personal property and belongings that are stolen or damaged. That includes many categories of items, such as jewelry, motorcycles, personal laptops, homes, furniture, and more.
  2. Liability (or casualty) coverage – this defends the policyholder against someone who files a lawsuit for damages they incurred in an event and believes you are responsible (liable). The claim against you can be for damage to property or injury to people. For example, if you hurt a pedestrian while riding your eBike, the liability coverage on your insurance policy would protect you from paying for the damages.

What’s the difference between personal and commercial lines of insurance?

The difference between personal and commercial insurance comes down to who and what are being protected in the event of a loss.

Personal insurance is purchased by individual consumers to protect the personal property they own – phones, bicycles, home, etc – and the insurance company will pay the individual to replace or repair that property.

Commercial insurance is purchased by businesses to protect equipment and property owned by the business. If a covered loss occurs to business property, rather than paying any individual, the insurance company will pay the business to replace or repair its property.

What are homeowners and renters insurance? Do they cover my personal belongings?

Homeowners and renters insurance are a type of personal insurance that people usually purchase to protect them from unexpected losses to their primary residence (e.g. their home or apartment). These policies primarily cover the interior and exterior from damages, theft, vandalism, or natural disasters such as lightning and fire. However, coverage for personal belongings and liability typically vary. Depending on the insurance company, consumers may sometimes add a floater for an additional premium to receive coverage for items that are inadequately covered in the base policy. This can serve as a safety net for consumers seeking basic protection.

In today’s world, consumers own all kinds of personal property. However, homeowners and renters insurance typically have very limited and restrictive clauses on valuable personal property. For example, homeowners and renters insurance often have low limits (e.g. $500) on items and you are subject to the same deductible as your overall homeowners or renters policy. As a consumer, it's important to understand the coverage details and limitations of your homeowners and renters insurance to ensure adequate protection for your valuables, e.g. jewelry or bikes.

Is there a better way to buy personal insurance for my bikes, laptops, collectibles, or jewelry?

While it may seem like homeowners and renters insurance provide coverage for personal property, the reality often is that these “bundled” policies end up providing inadequate protection for each individual item.

The good news is insurance does not have to be all packaged up and bundled together. You can purchase personal specialty insurance for individual items such as bikes, jewelry, phones, collectibles, and electronics, with tailored coverages specific to each product category.

Specialty insurance is designed to protect your items holistically against the specific risks they are associated with, and provide much broader coverage than what is usually included in homeowners or renters insurance.

How does homeowners and renters insurance coverage differ from specialty insurance?

There are many differences in policies for personal property coverage. Here are a few:

Deductible

A home insurance policy typically comes with deductibles on the order of $1,000 or higher. While this may be appropriate for large risks your home may face (fire, earthquake, etc.), it may also apply to your individual items. In many cases, this means any claim payout is $0, or a fraction of your item’s actual value. Not to mention claims will increase your policy’s premium.

A standalone specialty insurance policy may offer a $0 deductible, and a claim will not increase your homeowner’s insurance premium.

Coverage options

Homeowners insurance may limit, restrict, or provide no coverage for theft, international travel, and medical payments – especially if the loss happens outside of your home.

A standalone policy will include all of these, at and away from home, plus item-specific risks such as crash damage and loss-in-transit coverage via a bike insurance policy.

Full-value coverage

Home insurance may not cover your items for their full value. For example, an engagement ring that is appraised at $20,000 may only be covered for its purchase price, which is often lower. If a covered loss occurs, a jewelry insurance policy will cover the full appraised value of $20,000.

Replacement cost and depreciation

A homeowners policy may not insure the full replacement of your personal items. For example, suppose you purchase an eBike for $8,000 and insure it on your homeowners policy. If you file a claim four years later, you may only receive $4,000 as the “actual cash value” of the bike due to depreciation. Consumers must be sure to choose a “replacement cost” option (which would pay what it would cost to replace your original bike) – as opposed to specialty insurance, this may not be automatically included in a homeowners policy.

Claims

The outcome of submitting a claim via traditional insurance may be different than via an individual personal insurance policy. Claims for an individual piece of personal property such as your laptop will likely be counted in your homeowners claim history. The frequency and size of claims in a home insurance policy will increase the annual premium.  It's also possible your insurance company will cancel your policy for too many claims. 

In contrast, insuring your personal property with specialty insurance will not impact other lines of insurance. That means if you file a claim via specialty insurance, you get to keep paying lower insurance premiums for your other lines of insurance!

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