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Property insurance is a type of insurance that covers the property of the policyholder in case of loss or damage.
There’s a common confusion between property insurance and the property component of liability insurance.
Here’s how they are different:
Property insurance is a first-person type of insurance. That means it covers my property as the policyholder.
However, liability insurance covers third-party property damage. That means if I contribute to an accident through my actions or inactions, and I’m held liable for the property damage, general liability will cover that liability. It is not my property being damaged, but it is my insurance policy that covers it.
Why would tenants and vendors be required to furnish property insurance? What interest do the landlord and property manager have in the vendor or tenants’ own property?
Well, the landlord does obtain property insurance of their own. The landlord is responsible for insuring the building. This is known as real property.
Tenants and vendors, however, are responsible for insuring their personal property. Personal property insurance covers movable equipment and tools, furniture, and anything that’s mobile and not structural to the building. The vendor needs to insure his tools and equipment and other personal items because the landlord or property manager does not want to be held liable for damage to the vendor’s property.
The same thing goes for the property of tenants. Tenants are required to hold property insurance because if the tenant has property insurance and an accident occurs damaging the tenant’s property, the tenant’s own insurance will cover it with less probably of the landlord and/or property manager facing a claim to their liability insurance.
Where to find evidence of property insurance
- Standard Acord 25 COI
This COI is actually designed for liability insurance, but there’s a blank row towards the bottom where property insurance is often noted. This is a miscellaneous box where anything can be written. So if you see the word ‘property insurance’, “personal property tools and equipment”, or something of that sort noting what type of property is covered, then you know that there is property insurance.
- Separate forms – Acord 24, Acord 27, or Acord 28
The format and the structure of these forms vary, but they all serve the same function and purpose to evidence proof of property insurance.
How to review Property Insurance for compliance
When we’re looking for property insurance, there are three things that we’re going to check:
🎯 Step 1
Make sure that property insurance does indeed exist. Look for the word “property insurance,” “personal property,” or something similar.
🎯 Step 2
Make sure that there’s sufficient coverage. The limits must meet or exceed the requirements. If $1 million property insurance is required, $2 million would be sufficient, but $500,000 would not be in compliance with insurance requirements.
🎯 Step 3
Check the expiry date. If the expiration date has already passed, then there’s no valid coverage to cover an accident that may occur. Make sure that the property insurance expiration date is in the future.
Property Insurance: Basic, Broad, and Special forms
Property Insurance can be divided into three different types of forms depending on what kind of coverage is offered. We’re going to take a look at Special Form in particular because Special Form is very often in property insurance requirements whereas broad form and basic form rarely are.
Special Form of Property insurance is the type of property insurance that covers property against damage from any kind of risk that is not specifically excluded. If a risk is explicitly excluded, as flood and earthquake damage often are, then it is not covered under Special Form. Anything that is not specifically excluded by the policy is covered by Special Form by default.
Property insurance: Business Interruption
Business interruption, also known as business income insurance, is a type of extended coverage that sits on top of standard property insurance. It covers a business from risks that may disrupt the normal operations of that business. It covers the lost income that the business is losing as a result of the disruption.
A good example would be COVID 19 forcing a business to shut down for an extended period. During this time, business interruption insurance covered some businesses from the income that they lost due to the disruption.
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