Property Insurance Basics: Policies, Perils, and Exclusions
Named vs. open perils
A named-peril form covers only perils listed (fire, lightning, windstorm, hail, explosion, riot, vandalism, and in broad forms, water damage and weight of ice/snow). A special (open-peril) form covers all risks of direct physical loss unless excluded - broader coverage, but the exclusions do the real work in exam questions.
Standard exclusions to memorize
Earth movement (earthquake, landslide, sinkhole), flood, war, nuclear hazard, intentional loss, governmental action, neglect, wear and tear, deterioration, insects/vermin, and ordinance or law (the added cost of rebuilding to current code). Flood is the classic trap: it is excluded on virtually every property form and requires a separate flood policy. Faulty workmanship is excluded for the defective work itself but the resulting damage is often covered.
Valuation and limits
Actual cash value = replacement cost minus depreciation; replacement cost pays new-for-old up to the limit; functional replacement cost substitutes modern materials. Coinsurance penalizes underinsurance at the time of loss. Deductibles may be flat or a percentage of the limit (common for wind/hail). Agreed value suspends coinsurance.
Indirect and additional coverages
Loss of use / business income responds to the time element after a covered loss. Additional coverages typically include debris removal, fire department service charges, property removal/preservation of property, and pollutant cleanup - each with its own small sublimit.
Conditions that void or reduce coverage
Vacancy for 60 consecutive days before a loss typically suspends coverage for vandalism and similar perils; unoccupancy is treated less harshly. Failure to submit a proof of loss, to protect property after a loss, or to cooperate can bar recovery. Mortgagee clauses protect the lender's interest even if the insured's conduct impairs coverage.
Rule of thumb: ask three questions on every property item - which form (named or special), which valuation (ACV vs. RC), and which exclusion or sublimit applies?