Property Insurance (Definition), and Importance
There are different ways your property could be damaged from fire and flooding to theft. There are possibilities that these events may occur when unexpectedly and might leave serious damage on properties. Such damage might need a huge amount of money to replace or repair, and most times leave one in debt. However, since we can’t stop these events from occurring we can at least get property insurance to provide ourselves some coverage against unexpected costs.
Moreover, property insurance provides financial coverage for homeowners or renters of a building or structure including its contents in case of damage or theft. However, in this article, we provide information in detail on the meaning of property insurance, its types, how it works, and other important information that might be necessary.
What is Property Insurance?
Property insurance is a term for a series of insurance policies that provides protection to homeowners and renters against risks to property such as fire, theft, weather-related damage, etc. It is mostly combined with liability insurance, it typically provides financial reimbursement to homeowner or renter of property and structures within it in case of damage or theft.
Moreover, it includes a number of specialized insurance policies such as fire insurance, homeowners insurance, earthquake insurance, and flood insurance. Property insurance pays to replace or repair structures and items that were stolen or destroyed by fire, floods or other events. Therefore, you purchase the insurance plan in exchange for your the property to be covered. Then, if any of the covered event damages them, your policy will pay for the repair or replacement of the affected structures and items.
Life Insurance (Definition): Types, How it Works and Best Life Insurance Companies
How Does it Work?
However, properties are insured in two main ways, open peril and named peril. Open peril only provide coverage for causes of loss with that are not specifically excluded in the policy. Open perils normal exclude damage that result from earthquakes, floods, nuclear events, terrorism or acts of war.
On the other hand, named perils require the actual cause of loss to be mentioned in the policy for coverage to be provided. Damage caused by fire, lightning, wind, vandalism and theft are the more common named perils. Moreover, property insurance also provides liability coverage in the case where an individual other than the homeowner or renter gets injured while on the property.
Furthermore, the main purpose of any insurance is to secure and maintain your financial state after an unexpected loss. Therefore, you agree to pay a certain fee to an insurer or insurance company in exchange for a guarantee from the company to provide coverage for an uncertain loss in the future.
Types of Property Insurance Coverage
However, there are various forms of insurance policies included in property insurance which are not its types but provide customers with insurance on certain covered events. There are three types of property insurance coverage. They include replacement cost, actual cash value, and extended replacement costs. Now lets look into each of more details:
1. Replacement cost: This pays the cost of repairing or replacing the property at the same or equal value. This type of coverage is based on replacement cost values and not the cash value of the damaged items.
2. Actual cash value: This type of coverage pays for the replacement cost minus the depreciation. Meaning that the owner or renter gets the value of the property as at when it was damaged and not the value of a new one.
3. Extended replacement cost: This will pay more than the coverage limit if the costs for construction have increased, generally it does not exceed 25% of the limit. The coverage limit is the maximum amount of benefit the insurer will pay for a given occurrence or situation.
Importance of Property Insurance
However, here are the reasons why it is very important for you to have property insurance:
1. Property Insurance Protects the House and its Content
However, property insurance is term for series of insurance policies that provide property owners or renters with property protection coverage or liability coverage. Therefore, its main purpose is to offer protection for your house and any other structure or asset contained in it. It provides protection against the risk of damage or loss of expensive property such as a home or jewelry, that might be caused by fire, theft, natural disaster, or other factors.
2. Provides Liability Coverage
Another basic provision that many property insurance policies also include in addition to property protection is liability coverage. It protects you against financial risk from lawsuits and claims. This type of coverage is well known to car owner as automobile liability insurance coverage. The insurance company pay for such claims when someone gets injured while on your property and decides to sue. Also, when a neighbor’s property gets damaged by fire or any other incident you pay for the damage.
Health Insurance: Meaning, Types and How Health Insurance Works
3. Art and Jewelry
However, most homeowners posses expensive artworks and jewelries. In the case where you want coverage for such expensive materials, you may need to add a floater to your insurance policy. Many policies have a fixed amount they will pay out for losses to particular items, which they will not exceed.
4. It Provides General Security
It also includes other forms of insurance policies that provide protection in other cases. Such forms of property insurance include auto, home, flood insurance etc. It provides financial reimbursement to the owner or renter of a property and its content in case any of the covered events occur.
5. It Also Covers a Temporary Place to Stay
Depending on the policy, it also covers the cost of temporary place to stay while your home is undergoing repair.
In conclusion, this type policy is needed by anyone who owns expensive property. In most cases, you are either required by a mortgage contract or by law to have property insurance. Just like in all the 50 states in America, where the law requires every car owner or driver to have an automobile insurance.
Moreover, when purchasing an insurance policy ensure to know what your policy covers and what it doesn’t. Also check the type of coverage it offers, whether it covers at actual cash value or at replacement cost. Most policy rules vary from state to state and country to country. In some cases, if you leave your property specifically your house vacant for a certain period of time, your policy might canceled by the company.
Furthermore, the prices of insurance policy varies depending on the company and type of policy. Therefore, it is important to compare insurance quotes you get from multiple companies before purchasing a policy. The best ways to get quotes include: online; from the company’s website, or through an insurance agent.