Property Insurance Basics
How a property loss is analyzed
Property policies respond to covered perils acting on covered property, subject to exclusions, limits, and deductibles. Named-peril forms list exactly what is covered; special (open-peril) forms cover all direct physical loss except what is excluded - the distinction drives many exam questions.
Standard exclusions
Almost every property form excludes earth movement, flood and surface water, war, nuclear hazard, intentional loss, neglect, governmental action, and often ordinance or law (homeowners allows a limited amount, typically 10% of Coverage A). Vacancy and unoccupancy provisions suspend or restrict certain perils after a stated period.
Valuation, limits, and coinsurance
Losses settle at actual cash value or replacement cost; functional and economic obsolescence reduce replacement cost. Limits may be specific (per item or per building) or blanket (shared across locations). Coinsurance requires the insured to carry a stated percentage of value or share the loss. Other-insurance provisions may be pro rata, primary, or excess. An agreed-value provision suspends coinsurance.
After the loss
Duties after loss include prompt notice, protecting property from further damage, a signed proof of loss, and cooperation. Appraisal resolves disputes about the amount of loss; arbitration resolves other disputes. A mortgagee clause protects the lender to the extent of its interest and lets the lender pay premium and receive loss notice.
Worked example
A $1,000,000 building, 80% coinsurance, so $800,000 is required; the insured carries $600,000. A $200,000 loss pays: $600,000 ÷ $800,000 × $200,000 = $150,000, less the deductible. Rule of thumb: payment is loss × (carried ÷ required), never more than the policy limit.