Property Insurance Basics
Policy anatomy
Every property form contains declarations (who, what, limits, deductible), an insuring agreement (the promise), conditions (duties after loss, valuation, other insurance), exclusions, and definitions. Read the insuring agreement first: it tells you whether coverage is named peril (only listed causes; the insured bears the burden of proving the cause) or open peril ("risk of direct physical loss," all causes except those excluded; the insurer bears the burden).
Homeowners and dwelling forms
Homeowners policies split into Section I, Property (Coverage A dwelling, B other structures, C personal property, D loss of use) and Section II, Liability (E personal liability, F medical payments to others). Forms run from HO-2 (broad named peril) to HO-3 (open peril on the dwelling, named peril on contents), HO-5 (open peril on both), HO-4 renters, HO-6 condo/co-op, and HO-8, a modified form for older homes whose replacement cost exceeds market value. Dwelling policies (DP-1, DP-2, DP-3) insure rented or non-owner-occupied homes and have no liability section.
Valuation drives the math. Actual cash value equals replacement cost minus depreciation; replacement cost is new-for-old. Commercial forms use coinsurance to enforce insurance-to-value and offer causes of loss forms: basic and broad (named perils) and special (open peril). Flood and earthquake are excluded everywhere; California requires insurers to offer earthquake coverage, usually written through the California Earthquake Authority, and the California FAIR Plan is the property market of last resort.
Worked example: coinsurance
Limit $240,000; 80% coinsurance; replacement cost at loss $400,000; loss $80,000; deductible $1,000. Required limit = 0.80 x $400,000 = $320,000. Payment = ($240,000 / $320,000) x $80,000 = $60,000, less the $1,000 deductible = $59,000. Underinsurance cost the insured $20,000 of the loss before the deductible.
Trap to watch
Coinsurance is measured against the limit required at the time of loss, not the limit originally purchased, and replacement cost is used in the calculation even if the policy settles at ACV.