What is Property Insurance

Property insurance is a policy that provides financial reimbursement to the owner or renter of a structure and its contents in the event of damage or theft. Property insurance can include homeowners insurance, renters insurance, flood insurance and earthquake insurance. Personal property is generally covered by a homeowners or renters policy, unless it is of particularly high value, in which case it can usually be covered by purchasing an addition to the policy called a "rider." If there's a claim, the property insurance policy will either reimburse the policyholder for the actual value of the damage or the replacement cost to remedy the damage.

BREAKING DOWN Property Insurance

Perils typically covered by property insurance include damage caused by fire, smoke, wind, hail, weight of ice and snow, lightning, theft and more. Property insurance also provides liability coverage in case someone other than the property owner or renter is injured while on the property and decides to sue.

Property insurance policies normally do not cover water damage caused by floods, tsunamis, drain backups, sewer backups, groundwater seepage, standing water and many other water sources. They also may not cover mold, earthquakes, nuclear events or acts of war, such as terrorism and insurrections. 

There are three types of property insurance coverage: replacement cost, actual cash value, and extended replacement costs. Replacement cost coverage pays the cost of repairing or replacing your property with like kind & quality. Coverage is based on replacement cost values, not actual cash value of items. Actual cash value coverage provides for replacement cost minus depreciation. Extended replacement cost will pay over the coverage limit if the costs for construction have increased. This usually won't exceed 25 percent of the limit. When you obtain an insurance policy, the limit is the maximum amount of benefit the insurance company will pay for a given situation or occurrence.

Classifications of Homeowners Property Insurance

Most homeowners purchase an HO3 policy, a hybrid policy which covers personal property for physical loss or damage caused by 16 perils, such as fire, vandalism and theft, with certain conditions and exclusions. Under an HO3, there are coverage limits on some valuables and collectibles, such as sterling silver, gold, jewelry, fur, money, coins, firearms and stamps, which means if you lose or damage any of these items, coverage would have a predetermined limit. No coverage is usually provided in an HO3 for accidental breakage/damage and mysterious disappearance (lost, misplaced) of valuables, including fine art and antiques.

HO5 homeowners coverage includes everything in an HO3 policy, but it's applied to the structure and the property within your home, including your furniture, clothes and appliances. However, an HO5 does not include coverage for earthquakes or floods. HO5 insurance policies are available to homes that were either built in the last 30 years or renovated in the last 40 years, and they typically cover any damages at replacement cost.

HO4 property insurance is commonly known as renters insurance. It covers tenants from loss of personal property and liability coverage. It does not cover the actual house or apartment being rented, which should be covered by the landlord’s insurance policy.