Property and Casualty Insurance Basics
Property and Casualty Insurance Basics tests how coverage forms, perils, exclusions, limits, deductibles, and coinsurance interact. A public adjuster must read a policy as a coverage map: what property is insured, which perils apply, what is excluded, and how the loss will be valued.
Core structure
- Property policies insure real property, personal property, or both. Dwelling forms often cover the structure on an open-peril basis and personal property on named perils; commercial forms may use special-form (open-peril) coverage with specific exclusions.
- Liability coverage pays sums the insured becomes legally obligated to pay because of bodily injury or property damage, plus defense costs. It is not first-party property coverage.
- Additional coverages-debris removal, reasonable repairs, trees and shrubs, and additional living expenses-have their own sublimits.
- A mortgagee clause protects the lender's interest; payment may be shared or endorsed to the mortgagee.
- Coinsurance is a promise to carry insurance to a stated percentage of value. Falling below that percentage triggers a penalty on partial losses.
Worked example
A building valued at $1 million has an 80% coinsurance clause, so the insured should carry $800,000. The insured carries only $600,000. A $200,000 covered loss occurs. The coinsurance penalty is ($600,000 ÷ $800,000) × $200,000 = $150,000, before the deductible. The insured bears the $50,000 shortfall plus the deductible. If the policy had a $5,000 deductible, the payment is $145,000, subject to the policy limit.
Traps
Do not confuse coinsurance with a deductible; coinsurance penalizes under-insurance, a deductible is the insured's first-dollar retention. Do not assume a policy limit equals insurable value. Do not overlook exclusions such as ordinance or law, earth movement, or flood.