Property Insurance Basics
Homeowners and dwelling forms
Questions test which perils apply to which property. In the HO-3, the dwelling and other structures are insured on an open peril (special) basis while personal property is named peril; the HO-5 is open peril for both; the HO-2 is named peril throughout; the HO-4 (renters) covers contents, not the building; the HO-6 serves condo unit-owners; the HO-8 modifies for older homes using functional replacement cost. Coverages A–F: dwelling, other structures, personal property, loss of use, personal liability, and medical payments to others.
Valuation: actual cash value = replacement cost minus depreciation; replacement cost pays new without depreciation, but typically only after repair or replacement; functional replacement cost substitutes modern materials. Coinsurance in commercial property requires insurance to value - carry less and you share the loss.
Commercial concepts: the building and personal property coverage form, blanket vs. specific limits, agreed value (coinsurance suspended), reporting forms (premium adjusts to reported values), business income and extra expense (period of restoration), ordinance or law, equipment breakdown, and inland marine/floaters for property in transit or at multiple locations.
Traps
- Flood and earthquake are excluded; separate policies or endorsements are needed. Water from a burst pipe is covered; surface water is not.
- Coinsurance applies before the deductible.
- Vacancy provisions reduce or eliminate coverage after 60 days; unoccupancy is gentler.
- Other insurance clauses usually pay pro rata by limits.
- A mortgagee clause protects the lender separately - its rights survive the insured's acts.
Rule of thumb
(Insurance carried ÷ Insurance required) × Loss − Deductible. Worked example: 80% coinsurance, building should be $1,000,000, insured carries $600,000, $200,000 loss, $5,000 deductible. Required = $800,000; $600,000 ÷ $800,000 = 0.75; 0.75 × $200,000 = $150,000; less $5,000 = $145,000.