Property Coverage

Property insurance is any type of insurance that indemnifies an insured party who suffers a financial loss because property has been damaged or destroyed.  Property is considered to be any item that has a value.  Property can be classified as real property or personal property.  Real property is land and the attachments to the land, such as buildings.  personal property is all property that is not real property.  The Building and Personal Property coverage form is the form used to insure almost all types of commercial property.  The insuring agreement in the Building and Personal Property coverage form promises to pay for direct physical loss or damage to covered property at the premises described in the policy when caused by or resulting from a covered cause of loss.  The following is a brief outline of coverage and how they are used within the Commercial Building and Personal Property coverage.

Extensions of Coverage

Debris Removal   Fire Department Service Charges   Preservation of Property   Pollution Clean up and Removal   Newly Acquired Buildings   Newly Acquired Business Personal Property   Personal Property of Others/Employees   Valuable Papers & Cost of Research   Electronic Data Procession Including Mechanical Breakdown

Building and Business Personal

Coverage for the building includes the building and structures, completed additions to covered buildings, outdoor fixtures, permanently installed fixtures, installed machinery and equipment.   The building material used to maintain and service the insured's premises is also insured.   Business Personal Property owned by the insured and used in the insured's business is covered for direct loss or damage.  The coverage includes furniture and fixtures, stock, and several other similar business property items when not specifically excluded from coverage.  The policy is also designed to protect the insured against loss or damage to the personal property of others while in the insured's care, custody or control.

Coverage Extensions

In addition to the limits stated in the Building and Personal Property coverage form, the policy has a coverage extensions section and an additional coverage section.  The coverage extensions section provides limited coverage for newly acquired or constructed property, property of others, certain outdoor property, and the cost to research and reconstruct information on destroyed records.  When coverage is placed on the all risk form, two additional extensions are added for property in transit and coverage for certain repair costs related to damage caused by water.  The two additional extensions are covered for certain perils only.  The additional coverage section provides coverage for indirect losses that result from a direct loss.  The coverage applies to removal of debris, preservation of  property, fire department service charges and pollutant cleanup and removal.  The coverage extensions and the additional coverage has limitations and are subject to certain conditions.

Limit of Insurance

The most the insurer will pay for loss or damage in any one occurrence is the limit of insurance stated in the policy declarations.

Deductible

The standard deductible is $500., however, other deductible amounts are available. The deductible applies only once per loss.

Cause of Loss

The term "peril" is used when discussing losses.  A peril is a cause of loss.  Basic property insurance policies are written to cover the perils of fire, lightening, explosion, windstorm, hail, smoke, aircraft or vehicle damage, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.  Other property insurance policies, often referred to as the "broad form policy", add coverage for water damage, weight of snow, ice or sleet, breakage of glass and coverage for falling objects.  The broadest coverage is "special form", which is best known as the "all risk" form.  All risk covers all causes of loss,except those specifically excluded   from coverage.

Replacement Cost and Actual Cash Value

Property can be valued in several different ways.  Insurance companies commonly use two approaches to determine value, which also determine how a loss will be paid; the replacement cost method and the actual cash value method.  Insurers consider replacement cost of a property item to be the cost to replace it with new property of like kind.  Actual cash value is replacement cost minus the accumulated depreciation for age and condition.

Agreed Value

When the agreed value option is used, the coinsurance requirement is removed and the insurer agrees to cover losses for its agreed value.  As an example, the insured has property insured for $100,000 with this being the agreed value.  If a loss occurs, any loss up to $100,000 will be covered at 100%.  When this option is used, the insured and the insurance company agree on the value of the property before the policy is issued. This option is usually assigned to one-of-a-kind property.

Coinsurance

Most buildings and business personal property policies have a coinsurance clause which requires the insured to carry insurance equal to at least a specified percentage of the value of the property at the time of the loss.

Inflation Guard

An insured can insure a building for its full value at the beginning of the policy year, but, at the end of the year, it might not be covered for its full value.  This problem can be corrected by adding inflation guard coverage.  With inflation guard, the policy limit increases gradually during the policy term so that the total increase amounts to the desired percentage increase at the end of the policy term.