Property Insurance Basics and Coverages
The homeowners program
Know the forms by number: HO-2 (broad named perils on both building and contents), HO-3 (open-peril dwelling, broad named-peril contents), HO-5 (open peril on both), HO-4 (tenants - contents and liability, no Coverage A), HO-6 (condo unit-owner), HO-8 (older homes, modified/functional replacement cost). Coverages run A dwelling, B other structures, C personal property, D loss of use, E personal liability, F medical payments to others. Standard exclusions: flood, earth movement, neglect, intentional loss, ordinance or law (limited), freezing of plumbing while the dwelling is vacant, and water damage from outside the plumbing system.
Commercial property
Coinsurance requires the insured to carry a stated percentage (often 80–90%) of value. With replacement cost valuation, the payment is (insurance carried ÷ insurance required) × loss, never more than the limit. Business income and extra expense cover lost net income and continuing expenses during restoration.
Traps
- Flood and earth movement are excluded; water must escape from a plumbing or appliance system to be covered.
- Special dollar limits cap money, securities, theft of jewelry/furs, firearms, and business property on premises - do not assume the full Coverage C limit applies.
- Loss of use pays additional living expense or fair rental value and loss of rents; it does not pay the mortgage principal.
- Matching and ordinance-or-law issues frequently appear as add-ons, not base coverage.
Worked example
Building replacement cost $1,000,000, 80% coinsurance, insured carries $600,000. Required = $800,000. A $100,000 loss pays (600,000 ÷ 800,000) × 100,000 = $75,000, less the deductible.