Property Insurance Basics and Policy Structure
Reading the policy
Every policy has declarations (who, what, how much, when), an insuring agreement (the promise), conditions (duties after loss, appraisal, other insurance, pair and set, abandonment), exclusions, and definitions. Endorsements amend the base form and control in a conflict. The policy is read as a whole.
Valuation
Actual cash value equals replacement cost minus depreciation. Replacement cost pays new-for-old without depreciation, subject to the limit. Functional replacement cost and agreed value are variations. The loss settlement provision controls, not the declarations page.
Coinsurance
Commercial property coinsurance requires a limit equal to a stated percentage of the property value, usually replacement cost. If underinsured, the insurer pays:
(limit carried / limit required) x loss, never more than the limit carried.
Worked example: 80% coinsurance, replacement cost $500,000, so the required limit is $400,000. The insured carries $300,000 and suffers a $100,000 loss. Payment = (300,000 / 400,000) x 100,000 = $75,000, less the deductible.
Causes of loss
Basic covers named perils such as fire, lightning, explosion, windstorm, hail, smoke, aircraft and vehicles, riot, vandalism, and sprinkler leakage. Broad adds falling objects, weight of ice and snow, water damage, and glass breakage. Special is open peril: everything is covered unless excluded.
Other mechanics
Mortgage clauses protect the lender; other-insurance clauses allocate pro rata; deductibles apply per occurrence; vacancy and unoccupancy conditions restrict coverage.
Traps: the coinsurance penalty does not apply to a total loss; special form is open peril, not a list of perils.