Property Insurance Basics and Coverages
Policy mechanics
Property policies pay for direct physical loss to covered property caused by a covered cause of loss. Homeowners forms differ mainly in perils and eligibility: HO-2 broad named perils; HO-3 dwelling on open peril and personal property on named perils; HO-5 open peril on both; HO-4 renters (no Coverage A); HO-6 condominium unit owners; HO-8 modified form for older homes. Coverages run A dwelling, B other structures, C personal property, D loss of use, plus additional coverages and endorsements.
Valuation and coinsurance
Actual cash value is replacement cost minus depreciation; replacement cost pays new without depreciation, capped at the limit shown. The 80% coinsurance clause penalizes underinsurance: payment = (limit carried ÷ limit required) × loss, then subtract the deductible.
Commercial property
Causes-of-loss forms escalate from basic (fire, lightning, explosion, windstorm, hail, smoke, vandalism, sprinkler leakage) to broad (adds water damage, glass breakage, falling objects, weight of ice and snow) to special (open peril, subject to exclusions). Exclusions to know: flood, earthquake, ordinance or law, vacancy, and wear and tear. Concurrent policies share losses pro rata; a mortgagee clause protects the lender even if the insured's own acts bar recovery.
Traps
Deductibles come off after the coinsurance calculation, not before. Trees, shrubs, and debris removal are sublimited. Loss of use pays fair rental value and necessary increased expenses - not mortgage principal.
Worked example
An 80% coinsurance clause applies to a $200,000 building, so $160,000 is required. The insured carries $120,000 and suffers a $40,000 loss with a $1,000 deductible. (120,000 ÷ 160,000) × 40,000 = $30,000; minus $1,000 = $29,000 paid.
Rule of thumb
Check the required limit first, then the ratio, then the deductible - in that order.