Property insurance basics and policy provisions
Reading a property policy
Start with declarations: insured, property, limits, deductible, and forms. The insuring agreement grants coverage; conditions set duties; exclusions remove coverage; definitions control meaning; endorsements amend. Loss valuation drives payment. Actual cash value is replacement cost less depreciation. Replacement cost pays new without depreciation, subject to policy terms. Coinsurance is a promise to carry a minimum limit, often a percentage of value. Other insurance, salvage, appraisal, mortgagee rights, and subrogation affect settlement.
Traps
Watch named perils versus open perils. Check whether a limit is per item, per occurrence, or aggregate. Deductibles may apply per occurrence and may be separate for wind or theft. Do not ignore duties after loss: notice, protect property, inventory, proof of loss, and cooperation. Abandonment is not allowed. Pair and set, debris removal, and ordinance or law may add or limit payment.
Worked example
Building value is $800,000 with an 80% coinsurance clause and a $500,000 limit. Required insurance is $640,000. A $100,000 covered loss pays ($100,000 x 500,000 / 640,000) = $78,125 before deductible. If the limit had been $640,000 or more, the full covered loss would be paid up to the limit. Rule of thumb: coinsurance compares the limit with required insurance, not with the loss.