What Is Property Insurance?
Property insurance is a broad term for a series of policies that provide either property protection or liability coverage for property owners. Property insurance provides financial reimbursem*nt to the owner or renter of a structure and its contents in case of damage or theft—and to a person other than the owner or renter if that person is injured on the property.
Property insurance can include a number of policies, such as homeowners insurance, renters insurance, flood insurance, and earthquake insurance. Personal property is usually covered by a homeowner's or renter's policy. The exception is personal property that is very high value and expensive, which is usually covered by purchasing an addition to the policy called a "rider."If there's a claim, the property insurance policy will either reimburse the policyholder for the actual value of the damageor the replacement cost to fix the problem.
Key Takeaways
- Property insurance refers to a series of policies that offer property protection, including structural damage, theft of personal belongings, and liability coverage.
- Property insurance can include homeowners insurance, renters insurance, flood insurance, and earthquake insurance.
- The three types of property insurance coverage include replacement cost, actual cash value, and extended replacement costs.
How Property Insurance Works
Perils covered by property insurance typically include select weather-related afflictions, including damage caused by fire, smoke, wind, hail, the impact of snow and ice, lightning, and more. Property insurance also protects against vandalism and theft, covering the structure and its contents. Property insurance also provides liability coverage in case someone other than the property owner or renter is injured while on the propertyand decides to sue. Most mortgage lenders require homeowners to have property insurance if there's an outstanding mortgage loan on the property.
Property insurance policies normally exclude damage that results froma variety of events, including tsunamis, floods, drain and sewer backups, seeping groundwater, standing water, anda number of other sources of water. Mold is usually not covered, nor is the damage from an earthquake. In addition, most policies will not cover extreme circ*mstances, such as nuclear events, acts of war or terrorism.
Important
Property insurance includes homeowners insurance, renters 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 property at the same or equal value. The coverage is based on replacement cost values rather than the cash value of items.
- Actual cash valuecoverage pays the owner or renter the replacement cost minus 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 will pay more than the coverage limit if the costs for construction have gone up; however, this usually won't exceed 25%of the limit. When you buy insurance, the limit is the maximum amount of benefit the insurance company will pay for a given situation or occurrence.
Special Considerations
Homeowners and tenant insurance policies typically include some basic levels of coverage. However, several types of policies exist that extend beyond basic packages to include more comprehensive coverage. The greater the coverage, the more expensive the policy. Below are the most common types of homeowners policies (HO) and their coverage.
HO3
Most homeowners purchase a hybrid policy that compensates for physical loss or damage caused by 16 perils, including fire, vandalism, and theft. The coverage, known as an HO3policy, 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 usually provided in an HO3 for accidental breakage/damage and mysterious disappearance (lost, misplaced) of valuables, including fine art and antiques.
HO5
HO5 homeowners coverage includes everything in an HO3 policy but is geared toward the structure itself and the property within the home, including furniture, appliances, clothing, and other personal items. An HO5 doesn't cover earthquakes or floods. HO5 insurance policies are available to homes that were either built in thelast 30 years or renovated in the previous40 years, and they typically cover any damages at replacement cost.
HO4
HO4property insuranceis usually known as renter's insurance. It covers tenants from loss of personal property and liability coverage. However, it does not cover the actual house or apartment being rented, whichshould becovered by the landlord’s insurance policy.
Exclusions
Note that none of these coverage levels reimburses the homeowner for property that breaks down or is damaged in more normal wear-and-tear situations, such as a roof that begins to leak without damage from wind and hail. That's where home warranties—another way to protect your property—can be helpful.
What Is the Difference Between Homeowners Insurance and Property Insurance?
Homeowners insurance typically provides financial coverage for property losses due to physical damage, liability, and personal belongings. On the other hand, property insurance is an umbrella term describing various types of policies that include coverage for floods, earthquakes, and hurricanes.
What Is Not Covered by Property Insurance?
Typically, damage due to a home's age or normal wear and tear is not covered under property insurance. Depending on the policy, mold and insect damage may also not be covered.
What Are the Main Categories Covered Under a Homeowners Insurance Policy?
A standard homeowners insurance policy will cover damage to the physical structure, personal property, liability in case someone sues for getting injured, medical costs to the injured party, and additional living expenses for when you need to be out of the home while being repaired due to a covered event.
The Bottom Line
Property insurance is a broad term that includes various policies, including homeowners, renters, flood, and earthquake insurance. Property insurance provides compensation for personal belongings, physical damage to structures and liability coverage for property owners. Property insurance might also provide financial reimbursem*nt to renters in case of damage or theft.
