Does Homeowners Insurance Cover Items Bought With Pay-later Apps?

Pay-later apps are mobile applications that let you pay for online and retail transactions over time. They have become more popular during the pandemic, but many do not consider if they actually own the objects they purchase using these services. 

Should a disaster strike leaving your home with missing, damaged, or stolen items, getting your homeowners’ insurance to cover items purchased with pay-later financing can be tricky.

Before purchasing a policy, ask a lot of questions and study the fine print on your insurance contract to fully understand what is and isn't covered by home insurance. Although each homeowner's insurance policy is unique, practically all plans have a few elements in common.

After understanding home insurance and what it covers, take the time to find out what goes into buying something with a pay-later app and whether you own the items you are financing. 

This article will address ownership of household items that are still being paid for and how insurance handles claims made on items.

What are pay-later apps and how do they work?

Pay-later programs such as Affirm and Afterpay are frequently on the checkout page of your favorite online merchant. They allow you to spread the cost of your purchase over several monthly installments, typically advertised with no interest.

Buy now, pay-later applications let you make online purchases and pay for them in weekly, biweekly, or monthly payments. Like credit cards, these applications may charge interest, but they may also provide interest-free periods. You can avoid paying interest entirely if you pay off your debt before the month finishes. 

PayPal Credit, Afterpay, Affirm, Klarna, and Afterpay are some of the most popular pay-later applications. Many online shops have these on their checkout pages. A common interest-free payment plan divides a transaction into four equal payments, the first of which is paid at checkout, and the remaining three payments are sent every two weeks.

For instance, if you're buying a Father’s Day gift for $400, you could notice a pay-later option that allows you to pay in four $100 interest-free payments. You'll pay $100 upfront and get your item right away, then another $100 every two weeks for the next six weeks.

When you don't make timely payments or don't pay off your debt before the interest-free period expires, you risk incurring significant late fees and interest penalties.

Do I own the items I buy with pay-later apps?

Generally speaking, yes, you do own the items you buy with Pay-later apps. Once you receive the items from a vendor, they are technically yours unless you return them to that vendor. The financing agreement is between you and the pay-later app and not between you and the vendor.

However, not making payments on time (or at all) can negatively affect your credit score. pay-later applications seldom help your credit score, but they can damage it. Most pay-later applications don't pull your credit record and don't record on-time payments to the credit agencies. 

As a result, depending on the app, making all of your payments on time will not affect your credit score or even appear on your credit report.

Some pay-later applications, on the other hand, do track late payments. In addition, if you miss a payment, most pay-later applications can suspend your account and require that the outstanding sum be paid in full right away. If you don't pay, your debt will be sent to collectors, and it will negatively affect your credit score.

What is covered by homeowners insurance?

In most cases, homeowner's insurance covers a wide variety of potential losses. Your home should be covered, as well as any additional structures on the land such as a garage, fence, driveway, or shed. However, if you conduct a business in a separate facility on your property, it is usually not covered by homeowners insurance

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Insurance Coverage for Your Personal Belongings

Personal belongings are usually covered under your homeowners’ policy as well. Contents insurance is a term used to describe the precise protection it provides. However, certain high-value objects such as jewelry or artwork may be subject to coverage limitations.

If your furniture, clothes, sports equipment, and other personal belongings are stolen or damaged as a result of a fire, storm, or other insured disasters, they are covered. These items are covered no matter how you purchased them.

Personal possessions coverage extends to items kept off-site, ensuring that you are protected no matter where you are on the globe. So items you purchased with the pay-later apps can even be covered when in a different state or country. However, some providers cap the amount at around 10% of the amount of personal property insurance you have.

Jewelry, furs, art, collectibles, and silverware are often insured, though there are normally cost restrictions if they are stolen. Purchase a specific personal property endorsement or floater and insure the item for its legally evaluated value to fully insure these goods.

During an insurance claim, a claims representative may ask you to provide the receipt for the pay-later app purchase to prove you owned the jewelry, fur, etc.

Supplementary (or additional) coverage is sometimes acquired particularly for expensive purchases that might not be covered completely by a basic homeowners insurance policy. 

Will homeowners insurance cover possessions bought with pay-later apps?

When you purchase items with pay-later apps, you are given a receipt just like you would if you paid with cash or a card. Providing your homeowners insurance with that receipt will allow you to be reimbursed should that item be stolen or damaged.

However, the reimbursement amount may be lower than the purchase price considering depreciation. You will also still be responsible for keeping up with your weekly or monthly payments with the pay-later app. 

If the items you purchased with these apps are stolen or damaged, it doesn’t release you from the responsibility of making your payments. You enter into a contract with these apps and though your homeowners’ insurance policy will reimburse you, you are not released from that contract. That is why you should be cautious about entering into bad deals online.

Imani Francies writes and researches for the insurance comparison site, Clearsurance.com. She enjoys helping people understand homeowners insurance so they can find the best coverage for their needs.