Property Insurance Basics and Policy Provisions
Anatomy of a property policy
The declarations name insureds, locations, limits, and deductibles. The insuring agreement states whether coverage is named peril (listed causes only) or open peril / special form ("risk of direct physical loss," then exclusions narrow it back). Conditions impose obligations; exclusions remove exposures; definitions control meaning throughout.
Conditions that generate questions
Standard duties after loss: give prompt notice, protect property from further damage, cooperate, submit a signed proof of loss, and allow inspection. Appraisal resolves valuation disputes; arbitration resolves other disputes. Other insurance clauses typically pay pro rata, using contribution by equal shares when limits are equal. A mortgage clause protects the lender's interest and lets the lender pay premium and receive loss payment even if the insured's acts would otherwise bar recovery - a mortgagee is not the same as a simple loss payee. Abandonment of damaged property to the insurer is prohibited, and assignment requires written consent. Liberalization applies broadened coverage automatically to existing policies.
Valuation traps
Coinsurance is a percentage requirement, not a deductible. The formula is (limit carried ÷ limit required) × loss, capped at the policy limit; the insured absorbs the shortfall. Pair-and-set, debris removal, preservation of property, and collapse provisions are separate grants of coverage with their own sublimits.
Worked example
Replacement cost $1,000,000 with an 80% coinsurance clause requires $800,000. The insured carries $600,000 and suffers a $200,000 loss. 600,000 ÷ 800,000 = 75%; 75% × $200,000 = $150,000 paid, leaving $50,000 with the insured. Carrying the required limit avoids the penalty entirely.