The following contains an excerpt from Kaplan’s Property and Casualty Principles, 4th Edition course for Insurance Continuing Education.
Property insurance is relatively simple to define. It includes many types of insurance designed to cover property losses—the risks that we will suffer financial losses because things we own are damaged or destroyed.
There are three basic types of property loss:
Loss of or damage to the article itself: Examples of this type of loss are the theft of a valuable painting or damage to an automobile caused by an accident.
Loss of income from the use of the article: For example, suppose a hotel burns to the ground. In the year required to rebuild, the hotel loses more than $2 million in room rentals. This loss of income that arises from the damage to the hotel is a type of property loss.
The extra expense incurred due to the loss of the article: Suppose a large fire destroys a city newspaper building. To continue publishing, its owners rent another press at one-third additional cost. The extra expenses required to remain in business following a loss is a type of property loss.
Some types of insurance generally considered to be property insurance include the following:
Casualty insurance is more difficult to define because it includes a wide variety of basically unrelated insurance products.
One of the most important types of casualty insurance is liability insurance. Liability losses are losses that occur as a result of the insured’s interactions with others or their property. Probably the best example of this would be an auto accident. Let’s say Arthur is backing out of his driveway and hits Beatrice’s parked car, resulting in $600 of damage. Because Arthur was at fault, he is legally responsible, or liable, for those damages, and he must pay to have Beatrice’s car repaired. Liability insurance would protect Arthur from having to pay for those damages out of his own pocket.
To be legally liable, the individual must generally be guilty of negligence—the failure to use proper care in personal actions. If negligence results in harm to another, the individual is liable for the resulting damages.
People in the insurance industry often call liability losses third-party losses.
The insured is the first party. The insurance company is the second party. The person to whom the insured is liable for damages is the third party.
Just as you can purchase property insurance to protect yourself from financial loss if your property is damaged, you can purchase liability insurance to protect yourself from financial loss if you become legally liable for injury to another or damage to another’s property.
Although insurance for liability risks is an important casualty coverage, there are many other types of insurance that have traditionally been considered casualty insurance. Casualty insurance can also include the following types of insurance: