Property Insurance Basics and Policy Provisions
Anatomy of a policy
Every form contains declarations, an insuring agreement, conditions, exclusions, and definitions. Read exclusions literally. A 'special' (open peril) form covers risks of direct physical loss unless excluded; a 'named peril' form covers only listed causes. Anti-concurrent causation wording can defeat a covered peril when an excluded peril (flood, earth movement) contributes to the loss.
Conditions that generate questions
Duties after loss (prompt notice, proof of loss, protect property, cooperate), appraisal for disputes over amount, other insurance (pro rata or excess), pair and set, abandonment, salvage, and the mortgage clause, which protects the lender's interest even when the insured's acts void coverage.
Valuation and limits
Actual cash value, replacement cost, functional replacement cost, and agreed value. Coinsurance penalizes underinsurance: recovery = the greater of ACV or (loss x limit carried / limit required), capped at the limit, minus the deductible. Deductibles usually apply per occurrence to the property coverage parts only.
Additional coverages to know
Debris removal, preservation of property, fire department service charges, reasonable repairs, collapse, and ordinance or law (often capped at 10%).
Traps
Applying the deductible to liability coverages; assuming replacement cost applies to contents automatically; forgetting that flood and earth movement are excluded and separately available; treating 'special' as covering everything.
Worked example
80% coinsurance, building value $500,000, required limit $400,000, carried $300,000, loss $80,000, deductible $1,000: 80,000 x 300/400 = $60,000, less the $1,000 deductible = $59,000 paid.