What Is Property Insurance?

Insurance agent meeting with clients in their home

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Property insurance is an umbrella term for types of policies that owners or renters can use for property protection or liability coverage.

Definition and Examples of Property Insurance

Property insurance protects home and business owners from losses arising from damage to the property’s physical space and the assets or contents within it. For businesses, items owned or leased may also be considered property. 

For instance, your landlord isn’t responsible for your belongings when you rent a house. In this case, renters insurance is a type of property insurance you can purchase to protect your belongings, including furniture, electronics, and other personal property while renting.

How Property Insurance Works

You can’t actually purchase something called a property insurance policy because that would include homeowners, renters, and flood insurance, which all provide different types of coverage. Instead, you’ll need to obtain coverage that reflects your property’s characteristics and where you live. 

Depending on the policy, property insurance may also cover equipment breakdown, the removal of debris after a destructive event, and some types of water damage

Property insurance offers different forms of protection against loss or damage. First, it protects your house and any structures attached from covered perils. It also may cover other structures on your premises but not attached to your house. The contents within your house and other personal belongings you or other people you live with are also covered. 

Property insurance covers losses or damage caused by perils like fire, smoke, hail, wind, lightning, snow, and other weather-related afflictions. Coverage also extends to riots or civil unrest, acts of theft, and vandalism on the structure and the contents within for business property. Insurers may also provide liability coverage to protect third parties injured while on the property.

Conversely, typical property insurance does not pay for losses caused by earthquakes, floods, or acts of war.

Property insurance doesn’t cover the incidence of wear and tear because it’s not considered accidental and unpredictable. 

Property insurance policies provide either actual cash value coverage or replacement cost coverage. Actual cash value coverage reimburses the value of damaged, lost, or stolen property after deducting depreciation—the decrease in value because of age and wear. Replacement cost coverage reimburses the full cost to repair, replace, or rebuild damaged property at current prices. The materials must be of the same type and quality, so depreciation doesn’t matter. 

Most insurance companies require you to insure your property for at least 80% of its total replacement cost, but others may need you to insure for its full (100%) replacement cost.

Property insurance policies have a limit of liability—the maximum reimbursement you can receive for losses due to a covered peril. Ensure you have sufficient coverage to replace your property in the event of a total loss, otherwise, you’ll pay the amount that’s left above your policy’s limit.

If you suffer property damage or loss and make a claim, you’ll need to meet your policy’s deductible—the dollar amount of the claim you must pay before the insurance company reimburses for the loss. If you have a $5,000 claim for roof damage and your policy has a $1,000 deductible, for instance your insurer will deduct $1,000 from your claim and reimburse you $4,000.

The declaration page (usually the first page of your policy) summarizes key information about your policy, including your coverages, limits of liability, deductibles, discounts, and endorsements, among other aspects.

Types of Property Insurance

Homeowners Insurance

Homeowners insurance protects your home’s structure and the belongings inside against loss or damage caused by a covered peril. It also provides liability coverage for any injuries or property damage to others caused by you or if a visitor is injured at your home. The law doesn’t mandate homeowners insurance, but lenders may require it when you take out a mortgage.

Renters Insurance

Renters insurance covers your personal possessions from damage or theft, provides liability protection, and reimburses additional living expenses (ALE) when you’re living in a rented apartment or house and have to leave it because of your claim.

Liability protection pays for third-party property damage or bodily injury claims made against you by others. Additional living expenses coverage pays for the cost of living elsewhere temporarily if your home is damaged.

Renters insurance doesn’t pay the cost to repair the building or its structure—your landlord’s insurance should cover that. 

Condo Insurance

Condominium insurance is a type of property insurance policy that covers you, your property, and your entire condo unit (from the outermost walls inwards). It may also provide liability coverage when you’re sued for harm caused to others and additional living expenses when your unit is rendered uninhabitable. 

Flood Insurance

Flood insurance covers your dwelling and belongings for direct physical losses caused by water damage arising from flooding. The federal government administers most flood insurance and coverage may extend to losses caused by flood-related erosion from water currents or waves. 

Earthquake Insurance

Earthquake insurance reimburses you for loss or damage caused by an earthquake, including damage to your home, personal property, and the cost of temporary living arrangements. Earthquake insurance is available as a standalone policy or an endorsement to a homeowners or renters insurance policy. 

How Much Does Property Insurance Cost?

Many factors contribute to the cost of property insurance, and your insurer will assess them during the underwriting process to decide what rate to charge. Underwriting rules among insurers are different, so you shouldn’t be surprised if one company is willing to sell you a policy while another isn’t. Some factors that will affect the cost of property insurance include:

  • Age and condition of your property: Insurance companies won’t turn you down if you have an old and dilapidated home but they charge you a higher premium. 
  • Where you live: You’ll pay a higher premium if you live in an area prone to flooding, earthquakes, or crime. 
  • Construction materials: You’ll pay lower premiums if your house is built of stone or brick, as compared with a house built of wood. 
  • Replacement cost: You can expect to pay a higher premium if your house has a higher replacement cost
  • Deductible: You’ll pay a lower premium if you choose a higher deductible and vice versa.
  • Claims history: Insurance companies consider you a higher risk if you’ve made claims before, hence will charge you higher premiums.
  • Credit score: Although companies won’t deny you coverage based on your credit rating, you can score lower premium rates if you have a good credit score. 

Compare quotes, plans, coverage options, and discounts from multiple carriers to lock in the best price for your property. 

Key Takeaways

  • Property insurance isn’t a single policy but rather a series of policies that owners or renters can purchase to cover property damage or loss, liability claims, and potential additional living expenses. 
  • Your insurance company will only reimburse you for damage or losses caused by a covered peril. 
  • An insurer may offer policy add-ons, known as “endorsements,” that let you increase coverage, such as for jewelry, antiques, or mold removal.

Article Sources

  1. IRMI. "War Exclusion." Accessed Sept. 17, 2021.

  2. Texas Department of Insurance. "Homeowners Insurance Guide." Accessed Sept. 17, 2021.

  3. California Department of Insurance. "Earthquake Insurance." Accessed Sept. 17, 2021.