Property Insurance Fundamentals
The loss exposure
Property policies insure direct physical damage to covered property - the structure, business personal property, and on some forms personal property away from premises. Named-peril forms cover only listed causes, and the insured must prove the loss fits. Special (open-peril) forms cover everything except what is excluded, and the insurer bears the burden of proving an exclusion applies. Consequential losses such as business income, extra expense, and rental value come from separate coverage grants, not automatically.
Valuation drives the math
Actual cash value equals replacement cost minus depreciation. Replacement cost deducts nothing but is capped by the limit and usually conditioned on repair or replacement. Functional replacement cost substitutes modern materials for obsolete ones. Coinsurance requires carrying a stated percentage (commonly 80–90%) of value or sharing the loss. Percentage deductibles, such as a 2% wind deductible, are computed on the limit of insurance rather than the loss amount.
Conditions and endorsements
Frequently tested conditions include other insurance (pro rata), pair or set, salvage, appraisal, vacancy (coverage often suspends after 60 consecutive vacant days), the mortgage or loss payable clause, no benefit to bailee, and a prohibition on abandonment. Common endorsements add ordinance or law, debris removal, inflation guard, agreed value, and blanket rather than specific limits.
Worked example
A $1,000,000 building carries a 2% wind deductible. A windstorm causes $30,000 of damage. The deductible is 2% × $1,000,000 = $20,000, applied to the limit, so the payment is $10,000 - not $29,400 as it would be under a $600 flat deductible.
Traps
Applying a percentage deductible to the loss instead of the limit; assuming an open-peril form covers flood or earthquake (both are usually excluded); and treating business income as automatic when the policy covers only direct damage.