Property Insurance

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Updated August 22, 2020

Property Insurance Definition

Property insurance is an insurance policy or series of policies that provides insurance coverage for property protection and/or liability.

The policy provides reimbursement to the policy owner in the event of theft, damage, and/or injuries to someone on the property. Property insurance can be sold as homeowners, renters, fire, flood, or earthquake insurance.

What Does Property Insurance Cover?

The policy owners’ property is covered for damage or loss due to certain weather events such as wind, hail, snow, ice, lightning, or tornadoes. Damage from fire, smoke, and vandalism is also covered.

In areas prone to hurricanes, policy owners typically will have a separate deductible for a certain percentage, usually about 5%, of the replacement or repair cost.
Some events are not typically covered by property insurance. Damage caused by floods (covered by a separate government-backed flood insurance policy), tidal waves, mold, war, or terrorist acts are usually excluded from property insurance.

Personal property in a residence is typically covered by homeowners or renters insurance. Personal property that has an unusually high valuation such as jewelry or artwork can be covered up to its stated value through policy riders that are purchased and added to the main policy.

Types of Property Insurance Coverage

There are three basic types of property insurance coverage for property damage: replacement cost, actual cash value, and extended replacement cost.

Replacement cost covers the cost of repairs or replacement of the property at equal value. Actual cash value coverage pays the policyholder the original cash value of the property less depreciation. Extended replacement cost will cover replacement plus a certain percentage over the original covered amount in the event prices have risen. Usually, this will not exceed 25%.

Property Insurance vs. Homeowners Insurance 

While there are some similarities between homeowners and property insurance, the differences are more concrete. The major difference is that property insurance is first party coverage while homeowners is multi-line.

First party coverage means that the first party is the insured or policyholder and the second party is the insurance company. If there is a property loss the insured or the policyholder is reimbursed for the loss.

A multi-line policy, in the instance of a homeowners policy, provides multiple types of insurance coverage. In addition to property coverage, a homeowners policy also covers the policy owner for liability. 

For example, if the homeowner’s property is damaged by a storm, the insurance company, the second party, will reimburse the first party, the homeowner, for loss or damage. However, if the homeowner’s neighbor is bitten by the homeowner’s dog and the neighbor decides to sue, the insurance company will defend the suit and pay any damages to the injured party if that is what is decided by the court or mediation. The liability portion of the policy is also known as the third party section as the injured neighbor is the third party.

What Is Personal Property Insurance?

Personal property insurance protects the items inside of the home; it is appropriate for renters or homeowners insurance. Items such as appliances, personal electronics, jewelry, and other valuables are protected from theft or damage. Property on the outside of the home such as lawn equipment is also protected. 

However, personal property coverage is often limited by the terms of the policy. Typically, property is replaced based on actual cash value (ACV), which is the value of the property less any depreciation since the time of purchase. Policy owners can pay for more coverage by insuring up to replacement cost value (RCV), which pays for the full replacement cost of the property claimed without depreciation.