Property Insurance Basics
Policy anatomy
Every property form has five parts: declarations (who, what, how much, term), insuring agreement (the promise), conditions (duties and rules), exclusions, and definitions. Exclusions narrow the insuring agreement; conditions can void coverage if breached.
Valuation methods
Actual cash value = replacement cost minus depreciation. Replacement cost pays to repair or replace with new material of like kind and quality without depreciation. Watch for functional obsolescence, pair-and-set language (loss of one item of a set may pay only the diminished value of the set), and debris removal and preservation-of-property extensions.
Coinsurance
Coinsurance requires the insured to carry a minimum percentage of the property's value. Settlement is the greater of the policy limit or: (insurance carried / insurance required) x loss.
Worked example: 80% coinsurance, building replacement value $250,000, so $200,000 is required. The insured carries $150,000 and suffers a $50,000 loss. ($150,000 / $200,000) x $50,000 = $37,500, since the policy was underinsured.
Causes of loss forms
Basic covers fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Broad adds falling objects, weight of ice, snow or sleet, water damage, and glass breakage. Special is open peril - all direct physical loss is covered unless excluded. Never read "special" as "everything is covered."