Property Insurance Basics
How a property policy is built
Every property policy has five pieces: declarations (who, what, where, limits, deductible), the insuring agreement (the promise), conditions (duties after loss, valuation, other insurance), exclusions, and definitions - plus endorsements that amend everything. The insured generally must show a covered peril caused the loss; the insurer must then fit the loss into an exclusion.
Valuation
Actual cash value = replacement cost minus depreciation. Replacement cost pays new-for-old, usually requires you to actually repair or replace, and often pays ACV first. Functional replacement cost and agreed value are alternatives.
Coinsurance - the number-one calculation
The coinsurance percentage applies to the value at the time of loss, not to the limit. Required amount = coinsurance % × replacement cost. Payment = (limit carried ÷ required amount) × loss, never more than the limit; the deductible then reduces the payment.
Worked example: replacement cost $400,000, 80% coinsurance means $320,000 is required. The insured carries only $240,000 and has an $80,000 loss. 240,000 ÷ 320,000 = 75%, so the insured recovers $60,000, then applies the deductible.
Other mechanics
Duties after loss (prompt notice, proof of loss, protect the property, inventory, cooperate) can bar a claim if breached. Mortgagee/loss-payable language protects the lender even when the insured's own conduct impairs coverage. Other insurance is shared pro rata; subrogation and salvage reduce the net loss. Causes of loss forms run basic (named perils), broad (named plus weight of ice/snow, water damage, glass), and special (open perils subject to exclusions).
Traps: applying coinsurance to the limit instead of the loss; splitting a pair or set to boost recovery; forgetting business income requires a period of restoration.
Rule of thumb: check the value at the time of loss, never the value at policy inception.