Definition of property insurance
What is property insurance?
Property insurance is a general term for a series of policies that provide property protection coverage or liability coverage to homeowners. Property insurance provides financial reimbursement to the owner or lessee of a structure and its contents in the event of damage or theft, and to someone other than the owner or lessee if that person is injured on the property.
Property insurance can include a number of policies, such as home insurance, tenant insurance, flood insurance, and earthquake insurance. Personal property is generally covered by a home or tenant insurance policy. The exception is for personal property which has a very high value and is expensive – this is usually covered by the purchase of an addition to the policy called a âriderâ. In the event of a loss, the property insurance policy will reimburse the policyholder for the actual value of the damage or the replacement cost to resolve the problem.
Key points to remember
- Property insurance refers to a series of policies that offer either property protection or liability coverage.
- Property insurance can include home insurance, tenant insurance, flood insurance, and earthquake insurance, among other policies.
- The three types of property insurance coverage include replacement cost, actual cash value, and extended replacement costs.
How property insurance works
The risks covered by property insurance generally include certain weather-related ailments including damage caused by fire, smoke, wind, hail, impact of snow and ice, lightning, etc. . Property insurance also protects against vandalism and theft, covering the structure and its contents. Property insurance also provides liability coverage in the event that someone other than the owner or tenant is injured while on the property and decides to take legal action.
Property insurance policies normally exclude damage resulting from various events including tsunamis, floods, drain and sewer backups, groundwater infiltration, standing water and a number of others. water sources. Mold is usually not covered, nor is earthquake damage. In addition, most policies will not cover extreme circumstances, such as nuclear events, acts of war or terrorism.
Property insurance includes homeowners insurance, tenant insurance, flood insurance, and earthquake insurance.
Understanding property insurance
There are three types of property insurance coverage: replacement cost, actual cash value, and extended replacement costs.
- Replacement cost covers the cost of repairing or replacing goods of equal or equal value. Coverage is based on the value of the replacement cost rather than the cash value of the items.
- Actual cash value coverage pays the owner or tenant the replacement cost less depreciation. If the destroyed item is 10 years old, you get the value of a 10 year old item, not a new one.
- Extended replacement costs pay more than the coverage limit if construction costs have increased; however, this will generally not exceed 25% of the limit. When you buy insurance, the limit is the maximum amount of benefits that the insurance company will pay for a given situation or event.
Most homeowners buy a hybrid policy that compensates for physical loss or damage caused by 16 perils, including fire, vandalism, and theft. The coverage, known as the HO3 policy, has certain conditions and exclusions. There is a predetermined limit on the coverage of certain valuables and collectibles, including gold, wedding rings and other jewelry, furs, cash, firearms, and other items. No coverage is typically provided in an HO3 for accidental breakage / damage and the mysterious disappearance (lost, misplaced) of valuables including fine art and antiques.
HO5 homeowners coverage includes everything in an HO3 policy, but focuses on the structure itself and the ownership of the home, including furniture, appliances, clothing, and other personal items. An HO5 does not cover earthquakes or floods. HO5 insurance policies are available for homes that have been built in the past 30 years or renovated in the past 40 years, and they typically cover all damage at replacement cost.
HO4 property insurance is commonly known as tenant insurance – it covers tenants against loss of personal property and civil liability. It does not cover the rented house or apartment, which should be covered by the owner’s insurance policy.
Note that none of these levels of coverage reimburse the homeowner for property that breaks down or is damaged under more normal wear and tear situations, such as a roof that begins to leak without being damaged by wind and hail. This is where home equity guarantees, another way to protect your property, can come in handy.