Property Insurance Fundamentals
This chapter explains how personal property losses are valued and paid: named versus open perils, actual cash value versus replacement cost, deductibles, common exclusions, and subrogation. These rules are consistent nationwide.
Named Perils vs. Open Perils
A named-perils form covers only the perils listed in the policy, and the insured must prove the loss came from a listed peril. An open-perils (all-risk) form covers any cause of loss not specifically excluded, so the insurer must prove an exclusion to deny a claim. Open-perils coverage is broader and generally costs more. Understanding which basis applies to the dwelling and to personal property is key to reading a homeowners form.
Valuation and Deductibles
Actual cash value (ACV) equals replacement cost minus depreciation, reflecting an item's worth at the time of loss. Replacement cost coverage pays to replace with new property of like kind and quality without deducting depreciation, subject to conditions, and is valuable for personal property. A deductible is the amount the insured pays before the insurer pays; for example, on a $6,000 loss with a $1,000 deductible, the insurer pays $5,000. Deductibles lower premium and discourage small claims.
Common Exclusions and Recovery
Standard homeowners forms exclude certain catastrophic perils, notably flood and earth movement (such as earthquake), which must be covered separately or by endorsement. Losses from wear and tear, neglect, and intentional acts are also excluded. After paying a covered claim, the insurer's right of subrogation lets it recover from the party who caused the loss, preventing double recovery. The insured must not impair that right, for example by releasing the responsible party.