Property Insurance Basics
The two property families
Real property is land, buildings, and permanently attached items. Personal property is movable; business personal property adds stock, furniture, and tenant improvements. Coverage is written either named peril (only listed causes; the insured bears the burden of proving a listed cause) or special/open peril (all direct physical loss unless excluded; the insurer bears the burden of proving an exclusion).
Valuation
Actual cash value is replacement cost minus depreciation. Replacement cost pays new-for-old without depreciation, normally capped by the limit shown and often conditioned on insuring to a stated percentage of value. Functional and economic obsolescence also depress value. Fine art and similar items may be insured on an agreed-value basis.
Limits and penalties
A coinsurance clause requires the insured to carry a stated percentage of value or share the loss. Blanket coverage applies one limit across several locations or categories; specific coverage insures each separately. Other insurance clauses usually pay pro rata among policies written on the same basis, and excess where bases differ.
Conditions after a loss
Prompt notice, protection of property from further damage, cooperation, a signed proof of loss, and access for inspection. Appraisal settles valuation disputes; the mortgagee clause protects the lender's interest even when the insured's own acts would void coverage.
Traps
Applying coinsurance assumptions to a special form that lacks one; forgetting the deductible comes after the coinsurance step; equating actual cash value with market value.
Worked example
Open-peril building, $500,000 limit, 90% coinsurance, $600,000 replacement cost. Required limit is $540,000, so the risk is underinsured. A $90,000 loss pays ($500,000 ÷ $540,000) × $90,000 ≈ $83,333, less the deductible.