Property Insurance Principles, Policies, and Coverages
Structure of a property policy
Know Coverage A (dwelling), B (other structures), C (personal property), D (loss of use), E (personal liability), F (medical payments), and the homeowners forms: HO-3 (open peril on the dwelling, named peril on contents), HO-5 (open peril on both), HO-2 (broad named peril), HO-4 (tenants), HO-6 (condo), HO-8 (older homes, functional replacement). On the commercial side: building, business personal property, business income with a period of restoration, and blanket vs specific limits.
Valuation and coinsurance
Actual cash value is replacement cost minus depreciation; replacement cost pays new without depreciation, capped at the limit; agreed value and functional replacement are special cases. Commercial property coinsurance requires carrying a percentage (often 80% or 90%) of value or a penalty applies: (limit carried ÷ limit required) × loss, capped at the limit. Coinsurance questions almost always turn on identifying the required amount.
Causes of loss forms
Basic, broad, and special. Special is open peril - risks of direct physical loss unless excluded. Basic and broad are named peril forms. Read the exclusions: flood and surface water, earth movement, ordinance or law, neglect, intentional loss, war, nuclear, power failure, and water backup/sewer backup, which needs an endorsement.
Traps
Flood stays excluded even when a hurricane or heavy rain caused it; mold is limited or excluded; a vacant building loses theft and vandalism coverage; a mortgage clause protects the lender independently of the insured's acts; homeowners forms do not cover business property or business income.
Worked example: $600,000 building, 80% coinsurance = $480,000 required, insured carries $360,000; a $120,000 covered loss pays $90,000 (360/480 × 120,000).