Property Insurance Basics and Policy Provisions
Insuring agreement and perils
Named-peril forms list the covered causes of loss (fire, lightning, windstorm, hail, explosion, riot, aircraft, vehicles, smoke, vandalism, theft, plus broad-form additions such as weight of ice and snow, accidental discharge of water, and freezing). Open-peril (special) forms cover risks of direct physical loss unless excluded. Identify the form before analyzing any exclusion.
Valuation
Actual cash value is replacement cost minus depreciation. Replacement cost pays new-for-old without depreciation but is capped at the limit and usually conditioned on repair or replacement. Functional replacement cost and agreed value are variations. Coinsurance applies mainly to commercial property; residential forms instead use percentage deductibles and internal special limits.
Limits and conditions
Limits may be specific, scheduled, or blanket. Typical duties after loss: give prompt notice, protect the property from further damage, prepare an inventory, submit proof of loss, and cooperate in the investigation. Appraisal resolves valuation disputes; arbitration resolves coverage disputes. A mortgagee clause protects the lender's interest even when the insured's own acts would bar recovery.
Traps
- Ordinance-or-law, debris removal, and preservation of property are additional coverages with their own sublimits, not extra free limit.
- Vacancy (no people and no property) and unoccupancy (people absent, property remains) trigger different conditions.
- For pairs and sets, loss of one item may pay only the diminished value of the set.
Worked example
Coverage A is $300,000 on an HO-3 with a $2,000 deductible. A $40,000 partial loss with no coinsurance clause pays $38,000, subject to the replacement-cost conditions.