Property Insurance Basics
Anatomy of a policy
Every property policy contains declarations, an insuring agreement, conditions, exclusions and definitions. Coverages are typically lettered: A building, B other structures, C personal property, D loss of use or rental value. Named-peril forms list the covered causes; special (open-peril) forms cover all risks of direct physical loss except those excluded. The Basic, Broad and Special causes-of-loss forms escalate in breadth in that order.
Valuation methods
Actual cash value (replacement cost less depreciation), replacement cost, functional replacement cost, and agreed value. Replacement cost coverage usually requires insuring to at least 80 percent of replacement cost at the time of loss.
Coinsurance
Formula: (insurance carried divided by insurance required) times the loss, then subtract the deductible. If the carried amount equals or exceeds the requirement, the loss is paid in full up to the limit.
Worked example
An 80 percent coinsurance clause, replacement cost $1,000,000, $600,000 carried, a $200,000 covered loss and a $1,000 deductible. Required insurance is $800,000. The ratio is 600,000 / 800,000 = 75 percent, so 0.75 x 200,000 = $150,000, less $1,000, for a payment of $149,000.
Conditions and exclusions
Duties after loss (prompt notice, proof of loss, protect the property, cooperate), appraisal, salvage, subrogation, pair-and-set, and vacancy provisions. Common exclusions include ordinance or law, earth movement, water damage and flood, power failure, neglect, intentional acts, governmental action, and nuclear hazards.
Traps
When wind-driven rain and flood combine, anti-concurrent-causation wording may exclude the entire loss. Debris removal, preservation of property and collapse are additional coverages with their own sub-limits, not free extras.