Property and casualty (P&C) insurance is coverage against two types of losses. The first type is loss caused by damage to property you own, such as your home or car. The second type includes losses you cause others by damaging their property, harming their person or reputation, or causing them to lose money.
How Property and Casualty Insurance Works
The property portion of P&C insurance pays to repair or replace property you own while the casualty part covers your liability by paying for your legal defense in lawsuits. P&C insurance can be divided further between personal lines, such as homeowners and personal auto, and commercial lines like general liability and business property.
Each property and casualty insurance policy covers a specific type of loss. Understanding this can help you identify the risks you face and the policies that protect against them. For example, a professional liability policy covers your responsibility in a client’s financial loss, but it doesn’t cover a client’s physical injury even if you’re responsible for it. In most cases, a different policy, general liability, pays for the client’s injury. The same is true for property losses. A commercial property policy covers your business space and the items within it but only pays for damage at a particular address. If your operations require you to take business-owned items to various worksites, then you may want inland marine coverage.
“Broadly speaking, property and casualty insurance cover damage underneath two different umbrellas of loss. Property insurance protects against financial losses that result from theft or destruction of your—you guessed it—property. Casualty insurance covers damage caused by our recklessness or negligence, also known as the casualties of your actions. So, for a quick takeaway: Did something happen to your stuff? That’s property. Did you harm someone else or their belongings? That’s casualty.”
—Kacie Saxer-Taulbee, Data Scientist, Insurify
3 Types of Property Loss for Business Owners
Let’s take a closer look at the losses covered by property insurance and the policies that respond to them. First, property losses can be broken down into three basic types:
- Loss of or damage to the property: Imagine your business is burglarized, and the burglar takes off with all of your computers. Your property losses include both the items the burglar takes and the cost of repairing the glass door he smashed to get into your office.
- Loss of income from the use of the property: One example of this is a store owner who suffers a fire that makes her shop inaccessible for weeks. Not only is she out the cost of repairs, but she also can’t earn money while the repairs are being made.
- Extra expenses resulting from the loss of the property: Extra expenses are the costs you might have if your business is temporarily shut down while repairs are made. For instance, the store owner from the previous example may have to pay to store her inventory after the fire. That expense is above and beyond her normal operating costs and may be covered by her property insurance.
Insurers have developed a number of distinct policies to cover property losses. In commercial lines, some of the more common coverages are:
- Commercial property: Commercial property insurance pays for damages to property your business owns. This means real property and what insurers call “business personal property,” such as tools, equipment, inventory, fixtures, and furniture.
- Business interruption coverage: A business owner’s policy usually includes business interruption insurance to cover losses caused by a pause in operations, including fixed costs, such as rent and utilities, as well as lost profits and extra expenses.
- Commercial auto: Business owners can choose commercial auto insurance that covers physical damage to their vehicles caused by another driver in a collision or in a different situation, such as vandalism or bad weather.
- Inland marine: Inland marine pays for property loss when it occurs in transit. Most commercial property only covers items at the location listed on the policy, and auto insurance generally doesn’t include items in the vehicle―just the vehicle itself―making inland marine a smart buy for many business owners.
- Equipment breakdown: Sometimes called boiler and machinery insurance, equipment breakdown coverage pays to repair or replace equipment when an internal malfunction causes damage. For comparison, commercial property typically only covers external causes of damage.
- Crime insurance: Commercial crime coverage pays for your financial losses caused by dishonest employees or third-party fraud. Many business owners opt for this property coverage because standard commercial property insurance excludes employees’ illegal activities and won’t replace stolen money or securities.
While commercial property insurance is a good starting point, it has limitations that make other policies necessary. This is one reason why it’s a good idea to speak with an agent before purchasing insurance. An agent can help you identify and evaluate your risk so that you can select the appropriate policies for your business.
Casualty Losses and the Business Policies That Cover Them
Where property coverage is mainly between you and your insurer, casualty insurance adds other people into the mix and covers your responsibilities to them. A casualty loss is still a financial loss to your business, but one that’s the result of owing another party money because of the harm you caused. Essentially, casualty insurance pays for the other party’s loss so you don’t have to.
Commercial lines liability policies include:
- General liability: General liability insurance covers your responsibility to third parties in accidents that are inherent in most businesses, such as customer injuries. If a customer slips on your office’s slick floor, general liability pays their medical bills and your legal fees if she sues.
- Professional liability: People who present themselves as experts have a duty of care to the people who hire them. Professional liability, or errors and omissions, covers that duty by paying for your legal defense if a client claims you were negligent and covering court-ordered awards if you’re found liable.
- Commercial auto: Liability insurance is usually required by the state to cover a driver’s responsibility to other drivers. Business owners can choose to carry the state minimum or add other options to increase their protection.
- Workers’ compensation: State-mandated workers’ compensation insurance covers your responsibility for providing a safe workplace for your employees by paying for an injured worker’s medical bills and lost wages.
- Employment practices liability (EPLI): In addition to keeping employees physically safe, business owners are obligated to treat them fairly. EPLI covers business owners if an employee or job candidate claims discrimination, harassment, or other wrongful acts in the employment process.
- Product liability: Product liability covers a business’s legal responsibility to make sure the products it brings to the market are safe for consumers. If a consumer claims your product caused harm, this policy pays the consumer’s medical bills or repair cost, plus your legal fees if you’re sued.
Property and Casualty Insurance for Individuals
Property and casualty insurers also have personal lines policies for individuals from loss. These products typically combine liability and property coverage and include:
- Homeowners’ insurance: Property losses covered by home insurance include damage to the dwelling and its contents as well as damage to other structures, trees, and bushes on the property. Home insurance also covers your liability for accidents on your property.
- Renters’ insurance: The property portion of renters’ insurance covers the contents of the rental property, but renters also need liability coverage in case they cause damage to the property.
- Personal auto insurance: Individuals who own cars risk the same losses as businesses that own cars, so they have very similar policy options. People are usually required to get liability coverage and can opt for additional coverage to further protect against loss.
Who Property and Casualty Insurance Is Right For
Property and casualty insurance is a good idea for individuals who want to protect themselves from financial loss. This is probably easier to understand on the property side of things because private individuals and business owners usually purchase insurance to protect major investments they couldn’t easily replace on their own.
It actually works the same way for liability coverage. Lawsuits can be outrageously expensive, and if you don’t have insurance, then the costs all fall on you. Getting coverage transfers that risk to your insurance company and makes it easier for you to survive a catastrophe.
Property and Casualty Insurance Tips
Small business owners and private individuals need to know what to look for when buying property and casualty insurance. Not every policy is appropriate for every situation, so you want to evaluate your risk and your budget to figure out what coverage is appropriate for you. Below are four tips for small business owners to consider when looking at your property and casualty insurance needs.
1. Get Expert Advice From Insurance Professionals
Obtaining expert advice from insurance professionals who deal with property and casualty insurance every day can be a big help to you as you’re looking for coverage. Not only do they know how to evaluate your risks, but agents understand how P&C policies interact with one another. Working with an expert can save you from both coverage gap and overlapping policies.
“Ask questions. Insurance is boring, but make sure you take the time to understand the policy. Don’t focus on price only—the devil is in the details. I’ve seen it first hand when other agents are cutting coverage just to be able to ‘save’ you a few dollars. In this sue-crazy world, you need to ensure that you have enough coverage to protect you in case you cause someone damages.”
—Zhaneta Gechev, Founder, One Stop Life Insurance
2. Investigate P&C Companies Before You Buy
Perhaps the most important thing to know before you buy a policy from an insurance carrier is its financial stability. The more stable a company is, the more likely it will pay claims should the need arise. One place to find this information is from A.M. Best, a credit rating agency that evaluates the financial condition and operating strength of insurance companies.
In addition to financial strength, you want to look into a carrier’s reputation. Are they difficult to deal with? What’s its claim process like? Are policyholders generally satisfied with its service?
“One of the great secrets of the insurance industry is the National Alliance of Insurance Commissioners (NAIC). Just by finding a company’s NAIC code, you can look up complaint data on all its P&C divisions, including passenger auto, home, and commercial property.”
—Chris Tepedino, Insurance Expert, AutoInsuranceEZ.com
3. Take an Inventory Your Property
Whether you own a home or a small business, you have physical assets that could be damaged in a natural disaster. Unfortunately, waiting until after a catastrophe to figure out what you have and what it’s worth is too late. Take an inventory of all your property, both building and contents, so you know how much insurance coverage to get. Once you complete it, store it somewhere you can find it even if you face a tragedy. It will be a big help if you have to file a claim.
4. Be Proactive About Protection
Property and casualty insurance is all about thinking ahead, but buying coverage is only one part of protecting your assets. You also want to think of ways to reduce risk so that you don’t have to file a claim. For example, basic property maintenance like salting ice or removing debris from walkways makes it less likely for a visitor, customer, or employee to get injured.
Property and Casualty Insurance Frequently Asked Questions (FAQs)
Getting the right property and casualty insurance is essential for protecting your assets. However, with so many insurance products to choose from, both business owners and private individuals can find themselves scratching their heads. Hopefully, the answers to some frequently asked questions regarding property and casualty insurance can help.
What is covered under property and casualty insurance?
Property and casualty insurance is an umbrella term for many different insurance types. It includes insurance that protects the items you own, such as buildings and personal property, and it includes liability coverage that pays for damage you cause others. Additionally, P&C insurance products are made for both private individuals and commercial entities.
What is the difference between property and casualty insurance?
Property insurance pays for damage to your belongings, including your buildings, their contents, and any vehicles you own. Casualty insurance protects you in liability claims, such as allegations you caused another individual to suffer an injury.
Is auto insurance considered property and casualty insurance?
Auto insurance is often considered a type of property and casualty insurance. It’s a P&C coverage that includes both property and liability protection. When you buy auto insurance, you usually have to get liability coverage, but you can also get physical damage insurance for the vehicle itself.
What is the difference between general liability and casualty insurance?
Although the terms are commonly used interchangeably, there is a difference between general liability and casualty insurance. General liability insurance refers to a specific type of casualty insurance. Other types of casualty insurance include auto insurance, homeowners’ insurance,
Property and casualty insurance helps protect against you and your small business from financial loss. It can help with property losses to your business, home, or vehicles and against liability from damage to the property of others or injury. Protecting your assets with property and casualty insurance can help survive catastrophic events.