Property Insurance Basics and Policy Provisions
Policy architecture
Each property policy has four parts: declarations (who, what, where, how much, deductibles), insuring agreement (the promise and the perils covered), conditions (duties after loss, other insurance, appraisal, cancellation), and exclusions. Learn the homeowners skeleton cold: A - dwelling, B - other structures, C - personal property, D - loss of use, E - personal liability, F - medical payments to others.
Forms and valuation
HO-3 insures the dwelling open-peril and personal property on named perils; HO-5 is open-peril on both; HO-2 is broad named-peril throughout; HO-4 (tenants) and HO-6 (condo) delete Coverage A; HO-8 covers older homes on a functional replacement cost basis. Dwelling policies (DP-1, DP-3) contain no liability coverage unless endorsed. Actual cash value is replacement cost less depreciation; replacement cost and extended replacement cost (often 125 percent) pay more; agreed value suspends coinsurance.
Conditions and technical traps
After a loss the insured must give prompt notice, protect property from further damage, prepare an inventory, cooperate, and submit a sworn proof of loss. The mortgagee clause protects the lender's interest and gives the lender rights to notice and to pay premium. Other insurance is settled pro rata; the appraisal clause resolves valuation disputes; salvage reduces the loss.
Worked example (commercial coinsurance)
An 80 percent coinsurance clause applies to a building worth 1,000,000 dollars; the insured carries 600,000 dollars. A 100,000 dollar loss occurs. The required limit is 800,000 dollars, so the payment is 100,000 x (600,000 / 800,000) = 75,000 dollars, capped at the policy limit. Almost every disaster exclusion - earth movement, flood, water damage, neglect, vacancy, intentional loss - is a testable named exclusion rather than an insured peril.