Property Insurance Basics and Policy Structure
This domain tests the working mechanics of first-party property coverage: what is insured, what perils apply, how limits and deductibles operate, and how losses are valued and proved.
Core mechanics
Property policies identify covered property, covered causes of loss, limits, deductibles, and valuation. Named-peril forms cover listed perils; special or open-peril forms cover direct physical loss unless excluded. Deductibles may be flat or percentage-based. Coinsurance, where applicable, compares carried insurance to a required percentage of value. Duties after loss commonly include prompt notice, protection of property, proof of loss, cooperation, and examination under oath.
Other key provisions
A mortgagee clause protects the lender's interest. Subrogation allows the insurer to pursue a responsible third party after payment. Appraisal can resolve disagreements about amount of loss when the policy provides it. Replacement cost and actual cash value produce different payments; depreciation is central to the difference.
Worked example
A dwelling policy covers a wind-damaged roof. The adjuster calculates replacement cost at $18,000, depreciation at $4,500, and the deductible at $2,000. Actual cash value is $13,500. The first payment is $11,500 after the deductible. If the policy provides replacement cost, the withheld depreciation may be recoverable after the repair is completed and documented, subject to the policy's conditions.
Traps
Do not call a special form all-risk without noting exclusions. Do not apply a deductible per item when the policy applies it per occurrence. Do not ignore policy duties after loss. Do not assume replacement cost is paid before repair.