Property Insurance Basics and Coverage Forms
Perils and forms
Property insurance responds to direct loss to property and, in business forms, indirect loss such as lost income. First distinguish named-peril forms (basic, broad) from special/open forms, which cover all risks of direct physical loss unless excluded. Be able to read a causes-of-loss form and spot the classic exclusions: earth movement, flood, ordinance or law, neglect, intentional loss, war, and nuclear hazard - plus the resulting-loss question of whether an excluded peril set the loss in motion.
Valuation
Actual cash value (replacement cost less depreciation) preserves indemnity; replacement cost ignores depreciation but is usually conditioned on insuring to at least a stated percentage of value (commonly 80%). Functional replacement cost and agreed value are alternatives. Coinsurance math: required limit = percentage × value at loss; recovery = (limit carried ÷ limit required) × loss, capped at the policy limit.
Structure
Coverage may be specific (scheduled), blanket (one limit across items or locations), or reporting (deposit premium, periodic reports, audit). Extensions and additional coverages - debris removal, preservation of property, collapse, newly acquired property - usually carry their own sublimits.
Traps
Water from a burst pipe is covered; water from a rising source is not. Collapse is narrowly defined and often needs an endorsement. Some extensions escape the deductible. Business income uses a period of restoration and its own coinsurance base.
Worked example: a building worth $500,000 is insured for $300,000 under an 80% coinsurance clause; a $100,000 loss pays (300,000 ÷ 400,000) × 100,000 = $75,000.