Property Insurance Basics and Policy Provisions
Anatomy of the policy
Nearly every property form is built on DICE: Declarations (who, what, where, how much), Insuring agreement (what is promised), Conditions (duties of both parties), and Exclusions (what is not covered). Common conditions include duties after loss, appraisal, salvage, other insurance, no benefit to bailee, and the mortgagee clause - which protects the lender's interest even if the insured's own acts would defeat coverage.
Valuation and coinsurance
Actual cash value = replacement cost minus depreciation. Replacement cost pays new-for-old without a depreciation deduction. A coinsurance clause requires the insured to carry a stated percentage of value; if underinsured, the claim is reduced: (limit carried ÷ limit required) × loss, never more than the limit.
Standard loss provisions
Deductibles may be straight (subtracted per loss), franchise (no deduction if loss exceeds the amount), or percentage of the limit. Also know pairs and sets, debris removal, preservation of property, collapse, fire department service charges, vacancy/unoccupancy conditions, ordinance or law, and inflation guard. Causes-of-loss forms escalate: basic (named perils), broad (named perils, expanded), special (open perils - all risk of direct physical loss unless excluded).
Traps
- Coinsurance uses the limit at the time of loss, not the value at the time of loss.
- The special form is broader but still excludes, for example, wear and tear, collapse of awnings from snow, and dishonest acts.
- The mortgagee clause does not give the mortgagee the right to increase coverage.
Worked example: RC $1,000,000; limit $600,000; 80% coinsurance ($800,000 required); $100,000 loss. Payment = (600,000 ÷ 800,000) × 100,000 = $75,000, less the deductible.