Personal Property

What is the definition of personal property?

Any asset that is not real estate falls under the category of personal property. The difference between personal property and real estate, or real property, is that personal property is mobile; that is, it is not permanently attached to one spot. It is often not taxed in the same way as fixed property is.

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Personal Property: An Overview

Movable property, movables, and chattels are all terms used to describe personal property. It may be taken into account by a lender when someone applies for a mortgage or other loan because it is considered an asset.

Home appliances, apparel, and automobiles, for example, have a tendency to decline in value over time. Artwork and antiques, for example, can sometimes appreciate in value. Lenders may consider the total current value of a potential borrower's personal property plus their real property when determining creditworthiness.

TAKEAWAYS IMPORTANT

• Personal property (such as artwork or a car) or real estate can be used to secure loans (house).
• When people insure their homes, personal property plays a role.
• A automobile loan, for example, is a common example of collateralized debt.

What is the difference between real and personal property? 

Real estate, such as land and most types of structures, is immovable. Vehicles, furniture, yachts, and collectibles are examples of tangible personal property. Personal property, such as stocks and bonds, can be intangible.

Some loans are secured by personal property, just as some loans—mortgages, for example—are secured by real property, such as a house.

Personal Property and Insurance as an Example

When people insure their homes, personal property is also considered. A homeowner's insurance policy often protects both the physical dwelling and the owner's personal possessions, also known as the "contents" of the home.

The value of the policyholder's personal property is commonly calculated as a percentage of the dwelling's value, ranging from 50% to 70%. For example, if a home would cost $200,000 to rebuild if it burned down, the insurance would set the coverage limit for the owner's personal property at 70% of that amount, or $140,000.

Replacement value or actual cash value are typically the two alternatives for insuring personal items under a homeowner's policy. If the insurance stipulates replacement value, the insurer is required to replace a destroyed item with a comparable new item. With actual cash value, the insurer is only responsible for paying what the item was worth before depreciation.

So, if a refrigerator is destroyed in a house fire, a homeowner with a 10-year-old refrigerator and replacement coverage should receive enough money to replace it, whereas a homeowner with actual cost coverage would receive whatever the insurance company determined a used 10-year-old refrigerator was worth.

Particular Points to Consider

Policyholders must file a claim with their insurance company stating what they lost if their personal property is damaged. As a result, homeowners should keep an inventory of their personal belongings, preferably with photos and receipts, and store it safely off-site in case it's ever needed.

Certain forms of personal property, such as jewelry and computers, are also excluded from homeowner's policies. A insurance may, for example, limit jewelry coverage at $1,500. Policyholders with jewelry worth more than that can pay more to increase their policy's limitations or purchase supplemental insurance, known as a floater, to cover the entire value of their jewels.