What Is Property and Casualty Insurance? A Guide

A key component of your financial health is protecting your assets — and that's where property and casualty insurance come in. There are many types of insurance that fall within the broad category of property and casualty insurance, but they all have one thing in common: they're designed to protect your physical property and/or protect you from liability from accidents.

In other words, property and casualty insurance can help reduce your risk of a major financial loss. Without this coverage, you could find yourself faced with having to pull cash out of your savings, retirement, or other long-term investments, so it's important to understand what property and casualty insurance is and how it works.

Ahead, we'll explore:

• Types of property and casualty insurance
• What's covered under property and casualty insurance?
• When to review your insurance coverage
• And more

But first, let's look at what property and casualty insurance is—and isn't.

Property and casualty insurance (also known as P&C insurance) is a broad term used for all the types of insurance that are designed to protect your physical assets or cover your liability. Property insurance, specifically, can help you replace or recover value if your assets are damaged due to disaster, theft, vandalism, or an accident. Casualty insurance, specifically, can protect you from legal liability if you're held responsible for injuries or damage caused to others. 

Property and casualty insurance are commonly bundled together within insurance policies. Together, they provide comprehensive risk management.

Property and casualty insurance do not include health or life insurance. Health and life insurance cover only the insured individual and not any damage to property they own or liability for damage or harm to other people and their property.

As mentioned above, many different types of insurance fall into the "property and casualty insurance" bucket. Let's explore some of the most common types and what they generally cover.

Homeowners insurance covers your home and the contents of your home, such as appliances, electronics, furniture, and other personal property within policy limitations. 

Note that covered perils do not include certain types of natural disasters. A covered loss typically involves fire, smoke, wind, or hail, but common exclusions include floods and earthquakes. Flood insurance, for example, is a separate policy not included under homeowners insurance. 

Ideally, your policy should cover the replacement cost of your home. The replacement cost value is the cost to rebuild or replace the home without deducting for depreciation. Some policies will also help you cover temporary housing costs.

The insurance industry has been impacted by the rise of natural disasters, especially wildfires and flooding. Homeowners need to educate themselves on the risks associated with their locale, their policy's coverage limits, and what levels of risk management and types of property coverage they're comfortable with. 

If you own a condo instead of a single-family home, condo insurance is an option. Condo insurance covers only the interior of your unit, as opposed to homeowners insurance, which insures both the inside and outside structure of the building. Your condo association should have an insurance policy covering the building itself. Even if your condo association has its own coverage, you may want to consider protection against property damage not covered by the association's policy. 

If you rent a home or storage unit, it's a good idea to cover the belongings you keep there for the amount it would cost to replace them. A good renter's policy will cover damaged or stolen clothing, furniture, electronics, and bedding. Some will help you pay for temporary housing.

If you rent out a home to tenants, landlord insurance may offer protection against exposures unique to rentals, since standard homeowners insurance policies do not cover homes that are being rented out.

Most states require at least basic liability insurance to cover any damage you cause to others or their property. You can also add collision or comprehensive coverage to your car insurance policy. Collision covers damage to your car, if you're at fault. Comprehensive covers damage that's not due to a car accident, such as vandalism or a fallen tree. For many individuals with relatively sizeable savings and investments, consider getting more than the basic. Accidents can and will happen. If your insurance isn't enough cover the cost, you'll have to come out of pocket. You may also want to consider uninsured and underinsured motorist insurance if your more risk averse.

If you have valuables, such as jewelry, fine art, collectibles, electronics, or other expensive equipment, consider enough coverage to protect your financial investment. While some valuables (such as family heirlooms) can't be replaced, insurance can help you recover their financial value if they're damaged or stolen. 

If you have some level of wealth that you want to protect beyond what your home and auto insurance can provide you, then umbrella insurance is worth considering. It extends the regular liability coverage on your existing personal policies to protect your assets and future earnings, in case you're found at fault in a lawsuit or claim.

If you run a business or own business property, commercial insurance offers general liability against property damage, or bodily injury and medical expenses if anyone is hurt on the job. Professional liability goes a step further and covers more abstract losses due to errors in services provided, for example. Business insurance also includes workers' compensation. All states except Texas require businesses to purchase workers' compensation. While general liability protects your business, workers' comp protects your employees from work-related injuries. 

The exact events or situations your insurance will cover depend on the type of coverage you have and your specific policy. In general, property and casualty insurance can help you protect your assets and belongings from things like:

• Fire or smoke 
• Windstorms or hailstorms
• Other natural disasters such as floods, earthquakes, or sinkholes 
• Theft or vandalism
• Car accidents
• Falls and other accidents on property you own or rent 

Importantly, make sure you know which situations and events your policy specifically excludes. For example, most homeowners policies cover fire, wind, and lightning damage—but they don't cover flood damage. If your property is in a designated flood plain, your lender may require you to purchase a separate flood insurance policy. The same can be true for earthquakes, sinkholes, and other special events or situations. And most auto policies won't cover hail damage, unless you have comprehensive coverage. 

Every policy is different. So be sure to double-check before you sign.

An insurance agent or broker can help you choose the right coverage for your specific needs and budget. To get a better idea of what you'll need before you talk to an agent, ask yourself these questions:

• Which assets and belongings do I need to protect, based on their value and risk of being damaged? 
• How much would it cost to replace them or recover their value? 
• How much of my loss am I willing to pay out of my own pocket?
• How much am I willing to pay in monthly premiums?
• Do I need to consider umbrella coverage to protect myself from a lawsuit or major financial claim? 

Before you buy a new policy, check online ratings from independent agencies (such as Moody's, A.M. Best, and Standard & Poor) to find insurance companies with strong financial track records. Compare policies based on your specific needs and shop for the best value, but don't assume the cheapest policy is the best policy. Make sure you understand exactly which assets or belongings are covered, which types of property damage or loss are covered, and how much your insurance company will pay, in the event your property is damaged or lost.

Double-check your coverage at least once a year or after a major life event (such as the death of a loved one, inheritance, marriage, or a new baby) to be sure you have the right types of coverage and sufficient compensation to cover your assets and belongings should you find yourself in a situation where you need to make a claim. Some questions to revisit may include:

• Does your homeowners policy cover the most likely causes of damage or loss where you live (such as wildfire, hurricane, or earthquake)?
• If you live in a flood-prone area, do you need flood insurance?
• Would a policy with a higher deductible and lower premium make more sense for you? Or vice versa? A deductible is the amount you'll need to pay out of your own pocket before the insurance company will pay, while a premium is the amount you pay each month, quarter, or year to keep your insurance policy active. 
• If your property is damaged, will your policy cover the actual replacement cost or just the depreciated value? The replacement cost is the current cost of replacing your lost or damaged property. Depreciated value is the value of your property minus the loss in value that occurs over time; for example, a computer that costs $1,000 when it's new may have a depreciated value of only $600 after two years of use. If your policy includes a replacement cost provision, your insurance company will pay the total replacement cost. If not, they'll only pay a portion of the loss.
• Are there any other gaps in your coverage? For example, if you use your home or car for a business, you'll need special commercial coverage to protect yourself.