Property Insurance Basics and Policy Types
Coverage architecture
A homeowners policy is built from Coverage A (dwelling), B (other structures), C (personal property), D (loss of use), E (personal liability) and F (medical payments to others). Learn the forms by their perils: HO-2 broad named perils on dwelling and contents; HO-3 open-peril (special) on the dwelling but named perils on contents; HO-5 open peril on both; HO-4 renters (contents plus liability); HO-6 condo; HO-8 modified form for older homes using functional replacement cost. The dwelling program mirrors it: DP-1 basic, DP-2 broad, DP-3 special.
Valuation and limits
Replacement cost pays new-for-old; actual cash value deducts depreciation. Internal limits restrict cash, jewelry theft, silverware and firearms; off-premises personal property carries a percentage cap, as do trees, shrubs and other structures. Flood and earthquake are excluded and written separately -- the NFIP has a waiting period and its own limits. Ordinance-or-law and water backup require endorsements.
Commercial property
Business income pays lost profit plus continuing expenses during restoration; extra expense funds expediting costs. Business personal property, blanket versus specific limits, agreed value, inflation guard, and the vacancy and abandonment conditions are frequent test items. Inland marine covers property in transit and floaters.
Trap
The coinsurance clause is the classic trap: under-insuring reduces the payment proportionally, so a small loss can still be penalized.
Worked example
An 80% coinsurance clause on a $400,000 building requires $320,000 of insurance. The insured carries $240,000 and suffers an $80,000 loss. Payment = (240,000 / 320,000) x 80,000 = $60,000, less the deductible -- and never more than the policy limit.