Key Takeaways
- Covered property in property insurance typically includes the dwelling, other structures, personal property, and loss of use
- Real property includes land and anything permanently attached (buildings, fixtures); personal property is movable items
- Property insurance policies provide coverage on either a 'direct loss' basis (physical damage) or 'indirect loss' basis (consequential losses like lost income)
- The insured location or 'premises' is defined in the Declarations and determines where coverage applies
- The U.S. property insurance industry paid out $99.4 billion in catastrophe losses in 2023, highlighting the importance of proper coverage
Property Coverage Basics
Understanding what property is covered — and what isn't — is fundamental to property insurance. This section covers the building blocks of property coverage.
Types of Property
Property is legally classified into two main categories:
Real Property
Definition: Land and anything permanently attached to it.
Includes:
- The land itself
- Buildings and structures
- Fixtures (permanently attached items)
- Fences, driveways, patios
- Built-in appliances
- Attached garages
Key Characteristic: Real property cannot be moved without altering or damaging it.
Personal Property
Definition: Movable items that are not permanently attached to real property.
Includes:
- Furniture and appliances
- Clothing and electronics
- Vehicles (covered under auto policies)
- Business equipment and inventory
- Valuable items (jewelry, art, collectibles)
Direct Loss vs. Indirect Loss
Property insurance covers two types of losses:
| Loss Type | Definition | Examples |
|---|---|---|
| Direct Loss | Physical damage to property from a covered peril | Fire damages building, wind destroys roof, theft of contents |
| Indirect Loss | Consequential losses that result from direct damage | Lost rental income, additional living expenses, business interruption |
Direct Loss Coverage
This is the primary coverage — pays to repair or replace damaged property.
Example: Lightning strikes your home, causing $50,000 in fire damage. The insurer pays to repair the damage (minus deductible).
Indirect Loss Coverage
Also called "consequential loss" or "time element" coverage — pays for financial losses that flow from the direct damage.
Example: While your fire-damaged home is being repaired (6 months), you must:
- Rent an apartment ($12,000)
- Pay for restaurant meals ($3,000)
- Pay extra transportation costs ($1,000)
Your policy's Additional Living Expense (ALE) coverage pays these indirect losses.
Coverage Territory
Property coverage applies only within a defined territory specified in the policy:
| Policy Type | Typical Territory |
|---|---|
| Homeowners | Worldwide for personal property (with limits) |
| Dwelling | Described premises only |
| Commercial Property | Scheduled locations only |
Important: "Premises" or "described location" is the specific property address listed in the Declarations.
Property Coverage Categories
Standard property policies divide coverage into categories:
Residential Policies
| Coverage | What It Covers |
|---|---|
| Coverage A - Dwelling | The main residence structure |
| Coverage B - Other Structures | Detached garage, shed, fence (usually 10% of A) |
| Coverage C - Personal Property | Contents, furniture, belongings (usually 50-70% of A) |
| Coverage D - Loss of Use | Additional living expenses if home is uninhabitable |
Commercial Policies
| Coverage | What It Covers |
|---|---|
| Building | The commercial structure |
| Business Personal Property | Equipment, furniture, inventory |
| Business Income | Lost profits during shutdown |
| Extra Expense | Costs to continue operating during repairs |
Key Coverage Triggers
For a claim to be paid, several elements must be present:
- Covered Property — The property must be described in the policy
- Covered Peril — The cause of loss must be covered (named or open perils)
- Covered Location — The loss must occur within the coverage territory
- During Policy Period — The loss must occur while the policy is in force
- Conditions Met — The insured must comply with policy duties
Industry Impact
The property insurance market is substantial:
- $99.4 billion in catastrophe losses paid in 2023
- Hurricane Ian (2022) caused $60+ billion in insured losses
- Property insurance represents about 45% of all P&C premium written in the U.S.
Quick Answer: Property coverage protects physical assets (real and personal property) from direct damage and the indirect financial consequences that follow.
A built-in dishwasher that is permanently installed in a kitchen is classified as:
A fire destroys a restaurant. While being repaired, the business loses $50,000 in profits. What type of loss is the lost profit?
Coverage B in a homeowners policy typically covers:
2.2 Perils, Hazards, and Exclusions
Continue learning