Property Insurance Basics
Property, interests, and forms
Property forms cover an insured's interest in real property and business personal property, plus personal property of others in the insured's care (subject to limits). Coverage may be specific (scheduled), blanket (one limit across locations), or reporting (deposit premium with periodic reports).
Perils: named versus open
Basic and broad causes-of-loss forms list the perils covered. The special (open peril) form covers risks of direct physical loss unless excluded. That is the biggest conceptual difference: under a special form the burden shifts to the insurer to prove an exclusion applies.
Common exclusions
Earth movement, flood, water backup (unless endorsed), ordinance or law, neglect, intentional loss, war, nuclear, and faulty workmanship. Collapse and water damage definitions vary by form. Ensuing fire following an excluded peril is usually covered even though the initiating peril is not.
Valuation and coinsurance
ACV, replacement cost, and functional replacement cost produce very different settlements. A coinsurance clause requires a stated percentage of value (often 80 or 90 percent); if underinsured, payment is reduced proportionally: (limit carried / limit required) x loss, then subtract the deductible. Agreed value suspends coinsurance; a margin clause caps recovery per location.
Conditions and the mortgage clause
Duties after loss include prompt notice, proof of loss, protecting property from further damage, and cooperation. Appraisal resolves disputes over the amount of loss. The mortgage clause protects the lender's interest even when the insured's own recovery is impaired by the insured's acts.
Worked example
Replacement cost $1,000,000, 80% coinsurance, $600,000 carried, $200,000 loss, $1,000 deductible. Required limit is $800,000. Payment = (600,000 / 800,000) x 200,000 = $150,000, minus $1,000 = $149,000.