Property Insurance
Property insurance is first-party coverage for the insured's own buildings, equipment, inventory, and other physical assets against direct physical loss or damage from covered causes, such as fire or windstorm. What is covered depends on the causes-of-loss form and its exclusions.
Last updated October 13, 2026
How property insurance works
Property insurance is first-party coverage, meaning it pays the insured for its own losses. Commercial property policies generally respond to direct physical loss of or damage to covered property, and the causes-of-loss form decides which causes count.
- Named perils (basic and broad forms): cover only the causes listed, such as fire, lightning, explosion, windstorm, hail, and vandalism.
- Special form ("all risks"): covers any cause of loss unless it is excluded or limited.
How a covered loss is paid depends on the valuation clause, whether replacement cost or actual cash value, plus the limit, deductible, and any coinsurance condition. Lost income after a covered loss is a separate coverage, business interruption, usually purchased with the property policy.
Coverage usually attaches to defined property, such as a building, business personal property, or specified equipment, and each has its own limit. Confirm that the schedule reflects current locations, values, and any property owned by others that you are responsible for.
Example
A sprinkler line bursts at a hypothetical hardware startup and soaks test equipment and inventory. If water damage from that cause is covered, the property policy pays to repair or replace the items, subject to the limit, valuation, and deductible. Lost income during downtime would be handled separately under business interruption, if purchased.
What to watch for
- Exclusions. Even special form policies exclude some causes. Flood and earthquake usually need separate coverage.
- Underinsurance. Limits set below actual values can reduce payment, particularly with coinsurance clauses.
- Location. Property in transit, at contract manufacturers, or at other sites may have different terms or need additional coverage.
- Named perils vs. all risks. Confirm which form applies and read the exclusions section.
Property insurance vs. related terms
- Liability insurance. Property insurance is first-party coverage for what you own. Liability insurance is third-party coverage for what you may owe someone else. A fire at your office is a property question. A customer injured in your office is a liability question.
- Business interruption and contingent business interruption. Business interruption replaces income lost after direct physical damage at your own location. Contingent business interruption addresses income lost because damage at a supplier or customer location stops your business. Each has its own terms, waiting period and limit.
- Cyber, crime and digital-asset coverage. Property forms are written for tangible property. Electronic data and software are often limited or excluded, and employee theft or stolen digital assets generally belong under cyber, crime or digital asset coverage.
Second example: servers at a colocation facility
A hypothetical AI lab leases racks at a third-party colocation facility. A cooling failure overheats its servers and destroys several of them. Whether the property policy responds depends on several things: whether that location is covered and scheduled, whether temperature damage or mechanical breakdown is a covered peril or an excluded one, and whether equipment kept off premises has a lower sublimit. The lab's lost training time would be a business interruption question, subject to the waiting period. If the loss traces to the facility operator, the lab may also have a claim against the operator, which is a separate matter.
Questions to ask your broker or underwriter
- Is the causes-of-loss form named perils or special form, and what are the main exclusions and limitations?
- Is each category of property, such as equipment, inventory and improvements, valued at replacement cost or actual cash value?
- Are all locations listed, including colocation space, storage, contract manufacturers and property in transit, and what limit applies at each?
- Does the policy have a coinsurance clause or an agreed value arrangement?
- What deductibles and sublimits apply to specific causes such as water, wind or theft?
- Which endorsements add coverage for items the base form limits, such as equipment breakdown or utility service interruption?
Why it matters for technology, AI, fintech and digital-asset companies
Hardware, robotics, and data center companies hold expensive equipment, prototypes, and inventory that can sit at several locations or with suppliers. Values change quickly as companies scale, so limits need regular review. See property coverage, physical AI and hardware, and data centers.
Graphics processors and prototype devices are valuable, easy to move and attractive to thieves, and they lose market value quickly, which makes the valuation clause important. Software, model weights and digital assets are usually not covered as tangible property, so a company that runs on them should look at cyber and digital-asset programs next to its property policy. See cyber and technology E&O for the data side. Venture-backed companies grow into new space quickly, and landlords and lenders often ask for evidence of property coverage in leases and loan documents, so update the schedule after each build-out, move or financing.
See how this applies in practice: data center insurance for operators and builders and data center insurance guide.
Related terms
Related coverage
Frequently asked questions
What is property insurance?
Property insurance is first-party coverage for the insured's own buildings, equipment, inventory, and other physical assets against direct physical loss or damage from covered causes, such as fire or windstorm. What is covered depends on the causes-of-loss form and its exclusions.
What is the difference between named perils and special form coverage?
Named perils forms cover loss only from causes the policy lists. A special form, often called all risks, covers loss from any cause unless the policy excludes or limits it. Special form is generally broader, but exclusions still apply, so the wording matters.
Does property insurance cover lost income?
Not by itself. Lost income after a covered loss is typically insured under business interruption or business income coverage, which is usually added to the property program and generally requires direct physical damage from a covered cause.
Does property insurance cover flood and earthquake?
Usually not under standard commercial property forms. Flood and earthquake are commonly excluded and may be available through separate policies or endorsements, depending on location and carrier. Check the causes-of-loss form and ask your broker about optional coverage.
What is the difference between property insurance and liability insurance?
Property insurance pays for loss of or damage to your own physical assets, so it is first-party coverage. Liability insurance responds when someone else claims you caused them harm or loss, so it is third-party coverage. Most businesses need both, and they are usually separate coverage parts.
Does property insurance cover equipment I lease or that belongs to others?
It can, but not automatically. Coverage for property of others usually has to be included in the policy, often with its own limit, and a lease or customer contract may make you responsible for the equipment. Check the policy terms and the contract together.
Does property insurance cover servers, data and software?
Servers and other hardware are generally covered property if a covered cause damages them. Restoring data and software is commonly limited or excluded under property forms and is more often addressed by cyber coverage. The policy wording decides.
Does property insurance cover employee theft or stolen digital assets?
Usually not. Property forms commonly exclude employee dishonesty and treat digital assets as outside tangible property. Those risks are normally addressed by crime coverage or digital asset coverage, subject to their own terms.
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