Property Insurance Basics
Policy anatomy
Declarations identify the insured, property, location, limits, and deductibles. The insuring agreement grants coverage; conditions state duties after loss, appraisal, and the mortgage clause; exclusions and definitions narrow and clarify the grant.
Causes of loss
Named-peril forms cover only the perils listed; open-peril (special) forms cover risk of direct physical loss except what is excluded. Basic named perils include fire, lightning, explosion, windstorm and hail, smoke, aircraft and vehicles, and riot. Vandalism and sprinkler leakage appear on broader named-peril forms.
Exclusions to memorize
Ordinance or law, earth movement, flood and surface water, nuclear hazard, war, intentional loss, neglect, wear and tear, insects and vermin, faulty workmanship, and mold (limited or excluded).
Valuation and loss adjustment
The insurer pays the least of the limit of insurance, the amount necessary to repair or replace at the chosen valuation basis, or the amount actually spent. ACV, replacement cost, functional replacement cost, and agreed value each change the math; agreed value suspends coinsurance; reporting forms adjust premium by audit.
Other mechanics
Deductibles, salvage, appraisal, pair and set, debris removal, preservation of property, collapse, business income with a period of restoration, extra expense, blanket versus specific limits, inflation guard, vacancy and unoccupancy conditions, and the mortgagee/loss-payee clause (the lender receives loss payments, notice of cancellation, and may pay premium).
Trap: abandonment is never permitted - the insured cannot simply hand damaged property to the insurer - and vacancy has a strict definition (no people and no property) that can suspend coverage. Worked example: a $200,000 limit, replacement cost loss of $50,000, and $10,000 depreciation produce an ACV payment of $40,000, less the deductible.