How Property Insurance Works

Property insurance is an insurance category designed to protect personal property. It generally covers damage, theft, and other incidents to your building, other structures on your property, and your belongings. Property insurance is generally regulated by state law, and coverages may vary by state, insurer, and policy.

Property insurance is a contractual agreement between the insurer and the insured. The insured makes premium payments to the insurance company each month or year. In return, the insurance company agrees to protect the customer from financial loss in the case of damage to the customer’s property.

Policies for individuals can cover only a dwelling’s exterior, the exterior and interior, or the interior only. Property insurance for owned property covers the structure itself and your property inside. Property insurance for a rental property only protects your property inside your unit.

Property insurance provides either replacement cost value (RCV) or actual cash value (ACV). RCV reimburses you the full cost to repair or replace your property, while ACV only reimburses you for its current value after deducting depreciation.

Your policy will also likely include a deductible. You pay the deductible, then your insurance coverage kicks in to pay the rest of the claim. Your insurance policy may cost less if you choose a higher deductible.1

Most types of property insurance also provide liability coverage, which pays:

• Medical expenses for guests on your property
• Bodily and property damage injury on your property
• Damage done by someone who lives with you, even if it is off your property

Example of Property Insurance

One of the most common examples of property insurance is homeowners insurance, which protects the structure of your home in case of damage from a fire or natural disaster. It also protects the property within your home. If your kitchen caught fire, the property insurance would pay for repairs and replacement of items, minus your deductible.

Other types of property insurance offer different coverage. For example, if there was a fire in the kitchen of your rental apartment, you could only file a claim for damaged personal belongings, not for repairs to the kitchen’s cabinets, walls, or other features you don’t own.

It’s important to read your policy and understand what’s covered and what’s not. For example, if you intentionally set fire to your kitchen in an attempt to obtain money, that will not be covered by your insurer and could result in charges of fraud. Insurers may have special investigation units to investigate claims involving arson.

Types of Property Insurance

Here’s a quick rundown of various property insurance types.

Homeowners Insurance

Homeowners insurance is a type of property insurance designed to cover your home and your belongings within it. It generally covers the following:2

• The structure of your home
• Detached structures on your property, such as a garage or shed
• Your personal belongings
• Living expenses in case you have to leave your home due to a covered incident

Renters Insurance

Renters insurance is designed for those who rent versus own their home. Renters insurance doesn’t cover the structure of the building, just your personal belongings within the home. Renters insurance also generally provides liability protection and coverage for additional living expenses if you are displaced due to a covered incident.4

Condo/Townhouse Insurance

Like renters insurance, condo or townhouse insurance doesn't generally cover the exterior of the building. However, it provides more coverage for the internal structural elements, such as the walls and floor. Condo insurance also covers your personal belongings, liability, and additional living expenses.5 However, your insurance coverage and amount needed could also depend on covenants, conditions and restrictions (CC&Rs), declarations, and the association’s insurance policy.

Mobile Home Insurance

Mobile home insurance is similar to homeowners insurance in that it provides coverage for the physical structure of your home as well as your personal belongings. However, a mobile home policy differs from a homeowners policy in that it doesn’t typically involve attached structures such as garages.6

Flood Insurance

In the U.S., floods are the most common natural disaster.7 But flooding isn’t covered under a standard homeowners insurance policy. Homeowners in high-risk areas must buy a separate policy. Many private insurers offer flood insurance, but homeowners can also purchase it through FEMA’s National Flood Insurance Program.8

Earthquake Insurance

Earthquakes also aren’t covered by standard homeowners insurance policies. If you live in a high-risk area for earthquakes, you may want to purchase a separate policy. Many private insurers offer earthquake insurance, and California homeowners can buy it from residential insurance companies working with the California Earthquake Authority.9

How To Get Property Insurance

Schedule some time to find property insurance. Enlist the help of an insurance broker or shop around on your own with different companies. You may need to answer many questions about your home, including its construction date and any updates.

Here’s more on how to get property insurance:

1. Decide which type of property insurance you need based on whether you rent or own, and your home’s type (single-family dwelling, condo, townhouse, or mobile home).
2. Choose your coverage and coverage amounts; consider adding earthquake, flood, or valuable item coverage. If you have special, high-value items or antiques, let your insurer know.
3. Get several quotes, and ask about how deductibles and any discounts such as bundling might impact your final policy cost.
4. Review the company’s complaint or customer service record.
5. Choose the policy that fits your budget and risk tolerance. Your policy should provide enough coverage to rebuild your home and/or replace all of your personal belongings.

Frequently Asked Questions (FAQs)