Property Insurance Basics and Policy Provisions
Anatomy of a property policy
Every policy has declarations (who, what, where, how much), an insuring agreement (the promise to pay), conditions (duties the insured must satisfy), exclusions (what is never covered), and definitions that control interpretation. Property can be covered on a named-perils basis (only listed causes) or open/special perils (all risks of direct physical loss unless excluded).
Valuation, limits, and the coinsurance penalty
Losses settle at actual cash value (replacement cost minus depreciation) or replacement cost (which requires repair or replacement and an adequate limit). Limits may be specific, scheduled, or blanket. Commercial property often carries a coinsurance clause requiring the insured to carry a stated percentage of value; shortfall produces a proportional penalty. Other conditions matter: other insurance (pro rata contribution), deductible, mortgagee clause (the lender receives loss payment even if the insured's acts void coverage), pair-and-set, debris removal, preservation of property, and the bar on abandonment.
After a loss
The insured must give prompt notice, protect the property from further damage, prepare an inventory, cooperate, and submit a proof of loss. Disputes over value go to appraisal; disputes over coverage do not.
Worked example
The building is worth $400,000, the policy carries an 80% coinsurance clause, the limit is $240,000, the deductible is $1,000, and the loss is $100,000. Required limit = $320,000; carried/required = 240/320 = 0.75. Deductible first: $100,000 − $1,000 = $99,000. Then the penalty: $99,000 × 0.75 = $74,250 payable. Deductible applies before the coinsurance ratio, not after.
Traps
Vacancy (no people, no contents) versus unoccupancy (no people, contents remain); replacement cost holdback until repairs are complete; and assuming special-form coverage includes everything.