Property Insurance Coverage

One faces various kinds of financial risk in the course of daily life.  This may be related to one’s personal life or to one’s business on profession.  One way of meeting this risk is by taking insurance.  Insurance is basically transferring one’s risk to another party in exchange for payment.

When a person buys property for the purpose of residing in it or conducting business, he is making a huge investment.  An event like a fire, an earthquake or storm could cause heavy damage and may even destroy the entire property.  This would mean a heavy loss to the property owner.  It is important that the property owner buy property insurance to protect himself against such risk.  He should ensure that he takes the right of property insurance coverage.

Perils covered by property insurance

Property insurance coverage may be for various perils.

Policy for open perils

An open perils policy means that the property insurance coverage is for all kinds of perils except those that are specifically mentioned as ‘exclusions’ in the policy.  For instance, the policy may mention flood and earthquake as exclusions.  If the insured property is damaged due to any reason other than these, the insured will be indemnified by the insurer.

Policy for closed perils

If a insurance policy specifically mentions that the property insurance coverage is for specific perils named in the policy, then the insurance amount would be paid only if the damage is due to the specified causes.  If the policy were to mention fire, arson and storm as perils and if the building were damaged due to an earthquake, the insured cannot make a claim with the insurance company for the loss incurred.

Kinds of property insurance coverage

A property owner who wants to insure his property can opt for any of the following kinds of property insurance coverage.

Replacement cost coverage

If a property insurance policy is taken to cover replacement cost of the property and its contents, then in the event of damage to the property or contents, the insurer will compensate the insured for the money spent on replacing or repairing the damaged property.  Many insurers insist that the property is insured for at least 80% of the replacement cost to be eligible for this kind of property insurance coverage.

Actual cash value coverage

If a property insurance policy which allows for actual cash value coverage is taken, then the insurer will also take into consideration the depreciation of the insured property.  For instance, if a wall of the house is damaged and it would cost $10,000 to replace it, the insurance company will also consider how old the building is and the depreciation amount which has to be considered.  The insurance amount paid would be $10,000 minus the depreciation.

Some new kinds of property insurance coverage provided by insurance companies are ‘guaranteed replacement cost coverage’ and ‘inflation guard endorsement coverage’.

Guaranteed replacement cost coverage

Opting for this coverage would be very beneficial to the property owner in the event of damage to the insured property.  But this coverage can be taken only if the residence is insured for 100% of its replacement value.  The claim will be settled by the insurance company even if the claim amount exceeds the amount of insurance taken.  However, this property insurance coverage will not apply to personal belongings.

Inflation guard endorsement coverage

Generally, the replacement cost of one’s home will keep increasing every year as a result of inflation.  So, the insurance company will keep increasing the policy amount periodically, so that the policy covers the increased replacement cost.  So the insured may have to pay a higher premium at the time of policy renewal.
Just taking property insurance is not enough, the owner of the property should also select the property insurance coverage which would suit his needs best.

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