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Property Insurance

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HomeBrud.gifInsurance LawBrud.gifProperty Insurance

Property Insurance is a type of Non-Life Insurance that provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, or boiler insurance.

The insurance provides financial reimbursement to the owner or a renter of a property / structure and its contents, in the event of an untoward incident.

Types of Property Insurance

Property Insurance is offered in two main ways

  • Open perils
  • Named perils

An Open perils property insurance policy covers all the causes of loss not specifically excluded in the policy. Common exclusions on open peril policies include damage resulting from earthquakes, floods, nuclear incidents, acts of terrorism, and war.

A Named perils property insurance require the actual cause of loss to be listed in the policy for insurance to be provided. The more common named perils include such damage-causing events as fire, lightning, explosion, and theft.

In some cases, the insurance will be limited depending on the ownership or the scope of the even. Examples of such property insurances are: homeowners insurance, renters insurance, flood insurance and earthquake insurance.

Scope of coverage of policy

The scope for a property insurance is of three types

  1. Replacement cost coverage
  2. Actual cash value coverage
  3. Alternative living arrangements coverage

Replacement cost coverage

There are the three types of insurance coverage. Replacement cost coverage pays the cost of repairing or replacing your property with like kind & quality regardless of depreciation or appreciation. Premiums for this type of coverage are based on replacement cost values, and not based on actual cash value.

Actual cash value coverage

Actual cash value coverage provides for replacement cost minus depreciation. Extended replacement cost will pay over the coverage limit if the costs for construction have increased. This generally will not exceed 25% of the limit. When you obtain an insurance policy, the limit is the maximum amount of benefit the insurance company will pay for a given situation or occurrence. Limits also include the ages below or above what an insurance company will not issue a new policy or continue a policy. This amount will need to fluctuate if the cost to replace homes in your neighborhood is rising; the amount needs to be in step with the actual reconstruction value of your home. In case of a fire, household content replacement is tabulated as a percentage of the value of the home. In case of high-value items, the insurance company may ask to specifically cover these items separate from the other household contents.

Alternative living arrangements coverage

One last coverage option is to have alternative living arrangements included in a policy. If property damage caused by a covered loss prevents you from living in your home, policies can pay the expenses of alternate living arrangements (e.g., hotels and restaurant costs) for a specified period of time to compensate for the “loss of use” of your home until you can return. The additional living expenses limit can vary, but is typically set at up to 20% of the dwelling coverage limit. You need to talk with your insurance company for advice about appropriate coverage and determine what type of limit may be appropriate for you.

Total Insurable Value

Total Insurable Value (TIV) is the value of property, inventory, equipment, and business income covered in an insurance policy. This value is used in property insurance policies and can include the cost of the physical property being insured, such as a building, as well as the contents of the building, such as equipment. If the insurance policy covers a commercial property, any income lost if the property is damaged can also be included in the total insurable value.