Property Insurance

A person’s property may be damaged or destroyed by fire, theft, a terror attack or a natural disaster like an earthquake.  Taking property insurance would protect the property owner from losses or at least mitigate the loss from such damage.

Property insurance is primarily the first party insurance which means that it applies only to the property of the insured.  The insured can make a claim with the insurer only for his own loss.

The extensive damage caused by the World Trade Center terror attack in 2001 and Hurricane Katrina in 2005 resulted in increasing the demand for property insurance.

Types of Property Insurance

Property may be insured in two ways – open perils and named perils.

  • Open perils

When an ‘open perils’ policy is taken, all losses to property are covered, except those mentioned as exclusions in the policy.  The standard exclusions in such a policy are property damage caused by floods, earthquakes, nuclear disaster, terror attack or even war.

  • Named perils

A person who has taken a property insurance policy with ‘named perils’ can submit claims for property loss due to causes specifically mentioned in the policy.  For instance, if the policy mentions loss due to fire and theft, the insurance company will indemnify the insured only if property damage is caused by either of these reasons.

Types of Property Insurance Coverage

When a claim for property insurance arises, the insurer will indemnify the insured based on the kind of coverage he has opted for while taking the policy.

  • Replacement cost coverage

When the policy is covered for ‘replacement cost’ and the insured suffers a loss due to property damage, the insurance amount to be paid by the insurer will cover the cost of replacing the property.

  • Actual cash value coverage

A property insurance policy with actual cash value coverage, considers the actual value of the property at the time of loss.  This is nothing but the replacement cost adjusted for appreciation or depreciation.

  • Coverage for alternative living arrangements

Some insurers offer property insurance with coverage for cost of making alternative living arrangements.  For instance, the house of the insured may be badly damaged by fire making it uninhabitable and he may stay in a hotel.  If he is covered for, ‘alternate if living arrangements’, the insurer will compensate him for the hotel bill payment.

Property Insurance Claims

When the insurer receives a claim for property insurance, he will analyze the following:

  • Whether the loss to the property was caused during the period of the policy
  • Whether the property damaged was actually insured under the property insurance policy
  • The cause of the damage and whether the peril was covered in the insurance policy
  • Whether the insured has an insurable interest in the damaged property
  • Whether all conditions mentioned in the property insurance policy had been complied with by the insured

The burden of proof lies with the insured.  This means that he will have to satisfactorily prove that there was indeed a loss due to an insured peril during the period of the policy, that he has an interest in the property and that he has followed all the required conditions.

Deductibles in Property Insurance

A person taking property insurance may opt for deductibles.  This means that the insured agrees to pay a share of the claim and the remainder would be paid by the insured.  Taking a deductible would lower the premium to be paid by the insured.  However, in the event of actual damage, he would suffer a loss as he would have to bear part of the claim.

It is advisable for all property owners to insure their properties adequately.  They would then be prepared for any adverse event which could damage or destroy their property.  Though they would not be able to limit the damage, they could at least limit their losses.

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