What Does Property and Casualty Insurance Cover?

Property and casualty (P&C) insurance provides protection against financial loss from unexpected events. It broadly covers damage to one’s own property and legal responsibility for injuries or damages caused to others. P&C insurance helps mitigate the risk of depleting savings or other long-term investments.

Understanding Property Protection

Property protection covers damage to your own assets. This coverage helps repair or replace belongings damaged by a covered event. It distinguishes between real property, which includes fixed structures like buildings and homes, and personal property, encompassing movable possessions.

Real property coverage applies to the physical structure of a home, including walls, roofs, and built-in appliances. It also covers other structures not attached to the main dwelling, such as detached garages or fences. Personal property coverage extends to items like furniture, clothing, and electronics. This protection often applies whether the items are at home or away, such as during travel or in a storage unit.

Common causes of loss covered by property insurance include fire, lightning, windstorms, hail, theft, and vandalism. Policies may be “named perils,” covering only specific listed events, or “open perils,” covering all events unless specifically excluded. For instance, sudden water damage from a burst pipe is often covered, but damage from neglect or lack of maintenance is not.

The valuation method for property claims is either Actual Cash Value (ACV) or Replacement Cost Value (RCV). ACV pays the depreciated value of the damaged item. RCV pays the amount needed to replace the damaged item or rebuild a structure with new materials at current prices, without deducting for depreciation. Choosing RCV provides more comprehensive financial protection, as ACV may result in a lower payout.

Understanding Casualty Protection

Casualty protection, also known as liability coverage, covers legal responsibility for injuries or damages caused to others. This coverage is often referred to as “third-party” coverage because it protects against claims made by others.

Bodily Injury Liability covers medical expenses, lost wages, and pain and suffering for third parties injured due to the insured’s negligence. For example, if a policyholder causes a car accident, this coverage can pay for the injured parties’ hospital bills and lost income. Minimum coverage limits for bodily injury liability vary.

Property Damage Liability covers damage the insured causes to another person’s property. This can include repairs to another car, buildings, or fences damaged in an accident. Property damage liability often has a per-accident limit, and nearly every state requires a minimum amount of this coverage.

Liability coverage includes the cost of legal defense, even if the insured is not at fault. Some policies may also include Medical Payments (MedPay) or Personal Injury Protection (PIP). These coverages pay for medical expenses for the insured and their passengers regardless of fault, with PIP often providing broader benefits like lost wages.

Common Insurance Policies

Property and casualty coverages are bundled together in common insurance policies. These integrated policies provide comprehensive protection by addressing both damage to one’s own assets and liabilities to others.

Homeowners insurance is an example, including dwelling coverage for the physical structure, personal property coverage for belongings, and personal liability coverage for injuries or damages caused to others. Dwelling coverage protects the home against perils like fire or severe weather, while personal property covers contents. The personal liability portion helps pay for legal fees, medical expenses, and settlements if someone is injured on the property.

Auto insurance also combines property and casualty elements. Collision and comprehensive coverages cover damage to the insured’s own vehicle from accidents, theft, or other perils. Bodily injury and property damage liability coverages pay for injuries to other people or damage to their property if the insured is at fault in an accident.

Renters insurance includes personal property coverage for a tenant’s belongings and personal liability coverage for incidents occurring in the rented space. This policy protects against losses such as theft or fire affecting personal items and provides financial support if the renter is sued for causing injury or property damage to another party. For businesses, general liability insurance covers casualty risks like bodily injury or property damage caused to others, while commercial property insurance covers the business’s physical assets.

Typical Exclusions

Exclusions are specific events or circumstances for which property and casualty insurance policies do not provide coverage. These limitations are standard across many policy types.

Certain perils are excluded from standard property insurance policies and often require separate, specialized coverage. Flood and earthquake damage fall into this category, requiring distinct flood or earthquake policies. Damage from intentional acts by the insured is also excluded.

Damage caused by wear and tear, gradual deterioration, or neglect is not covered. Insurance protects against sudden and accidental losses, not maintenance issues or the natural aging process of property. Acts of war, including invasions, insurrections, revolutions, and terrorism, are excluded from personal and commercial insurance policies. Specific war risk insurance can be purchased in certain circumstances.

Personal policies have limitations on coverage for business activities. For example, personal property or vehicles used for business purposes may not be fully covered under a standard personal policy, requiring a commercial policy or endorsement. High-value items such as jewelry, fine art, or collectibles often have sub-limits within standard personal property coverage. To ensure these items are protected for their full appraised value, they need to be specifically listed or “scheduled” on the policy through an endorsement, which may offer broader “all-risk” protection.