Property Insurance Principles and Policy Basics
Policy anatomy
Every property policy has declarations (who, what, where, how much), an insuring agreement (what is promised), conditions (duties, valuation, other insurance), exclusions, and definitions. Know the difference between named-peril forms (basic, broad) and special form (open perils, where everything is covered unless excluded).
Valuation and coinsurance
Actual cash value = replacement cost minus depreciation. Replacement cost pays new without depreciation, usually after repair or replacement. Most commercial property forms contain an 80% coinsurance clause: if the limit carried is less than 80% of the property's value at loss, payment is reduced proportionally.
Worked example: Building value $800,000; 80% requirement = $640,000; limit purchased $600,000; loss $100,000. Payment = ($600,000 / $640,000) x $100,000 = $93,750, less the deductible. Carrying $640,000 or more pays the loss in full up to the limit.
Conditions that generate questions
Insureds must give prompt notice, protect property from further damage, cooperate, and submit a signed proof of loss. Appraisal resolves valuation disputes; salvage belongs to the insurer after payment; insureds may not abandon property to the insurer. Other insurance is typically shared pro rata by limit. Mortgage clauses protect lenders even if the borrower's acts void coverage.
Traps
Do not apply coinsurance to a replacement cost form or an agreed value form, and never forget the deductible. Read the numerator and denominator carefully in any coinsurance calculation, and remember blanket limits cover multiple locations under one limit while specific limits apply per location.