Definition of Property Insurance

Property insurance helps minimize monetary loss caused by disaster.

The term "property insurance" in the United States is generally used to refer to property and casualty insurance, most often in reference to a homeowner's insurance policy. However, property insurance does not always refer to homeowner's insurance and furthermore, portions of many automobile insurance policies are, in simplistic terms, property insurance, as are renter's insurance and many specialty policies.

Identification

Property insurance is protection against losses due to damage to property. Losses may be incurred as a result of fire, vandalism, accidents, and a multitude of other disasters. The property insured may be a residential or business structure and the furnishings inside, including both personal belongings and business inventory. Property in the basic sense can also refer to an automobile, a boat, a motorcycle, an art collection or any other legal possessions an individual can accumulate and own.

Function

As Stanley G. Eakins of East Carolina University has written, "The purpose of insurance is for individuals and businesses to transfer risk to others." Transferring this risk is put into action by consumers who are willing to pay premiums regularly and allow underwriters to do the gambling for them. Insurance companies profit substantially by accurately calculating the risk involved, fixing their fees accordingly and providing a sense of security to their policyholders by carrying the risk.

Features

An insurance policy is a contract between the insured (policyholder) and the insurer (insurance provider). A property insurance contract that offers "replacement coverage" provides the insured party with the money required to buy back or rebuild the insured property, up to the limit of coverage specified in the contract (policy). A cheaper form of property insurance is an "actual cash value" policy, which pays current market value for a loss, meaning depreciation is considered before claims are settled.

Other Types

Although automobile insurance policies generally are made up of several parts, including liability and personal injury, the comprehensive portion of an auto policy works as property insurance, providing replacement or cash value coverage on the vehicle. Another type of property insurance commonly purchased is renter's insurance, which covers the furnishings and personal possessions of people who do not own the home they live in. A number of other insurance types also cover various properties.

Considerations

In the United States property insurance is offered that will cover everything from the family pet to a personal watercraft to a baseball card collection. Sorting out which policy covers what is a necessity to obtain and maintain sufficient insurance without paying for duplicate coverage. For example, most homeowners’ insurance policies do not cover floods. Flood insurance must be purchased separately. However, most homeowners’ property insurance policies do cover the personal possessions the insured carries along on vacation. Reading a policy carefully will help clarify the details.

Warning

Recording and maintaining an up-to-date inventory of insured property is a means of protecting against being underinsured. Photographs and video of insured items, along with receipts and other documents pertaining to the purchase and value of insured property, are part of a detailed inventory. A bank safe deposit box is a good place to store both inventory records and insurance policies, as they should never be kept in the same location as the insured property itself.

References

• "Finance: Investments, Institutions, Management;" Stanley G. Eakins, 2005.
• Insurance Information Institute: Improving Public Understanding of Insurance
• NAIC: Consumer Alert, Property Insurance
• U.S, Department of Commerce MBDA: Introduction to Property Insurance
• Consumer Action: Insurance--Homeowner and Renter's

Resources

• Insurance Information Institute: How Do I Take a Home Inventory and Why?