Property Insurance Basics and Policy Provisions
Property insurance basics tests policy architecture and valuation: what is insured, against what perils, for how much, and when payment is due. Minnesota claims often turn on replacement cost, coinsurance, deductibles, mortgage clauses, and the difference between direct damage and time-element loss.
Policy provisions
The declarations set limits, deductible, and forms. The insuring agreement covers direct physical loss to covered property. Causes-of-loss forms are basic, broad, or special; special is open peril with exclusions. Valuation is actual cash value (replacement cost less depreciation) or replacement cost. Coinsurance requires the insured to carry a percentage of value; a penalty applies if underinsured at loss.
Conditions and mortgage rights
Duties after loss include prompt notice, proof of loss, cooperation, and protection of property. The mortgage clause protects the lender's interest and allows the lender to receive loss payment and submit proof of loss. Pair-and-set, debris removal, and ordinance-or-law coverage are common extensions with sublimits.
Worked example
A building has a replacement cost of $1,000,000 and an 80% coinsurance clause, so $800,000 is required. The insured carries $600,000. A covered loss is $200,000, deductible $5,000. Payment = ($600,000 ÷ $800,000) × $200,000 = $150,000, less $5,000 = $145,000. The insured absorbs the $50,000 coinsurance penalty plus the deductible.
Traps
Do not apply coinsurance to a replacement-cost form without checking the valuation clause; do not forget that the deductible applies as the form states; and do not pay replacement cost before repairs are completed unless the form permits.