Personal Lines Insurance: Form Architecture, Valuation, and Recurring Traps
Know the form architecture first
Personal lines questions reward knowing the structure before the details. For homeowners, memorize the six coverage parts - A Dwelling, B Other Structures, C Personal Property, D Loss of Use, E Personal Liability, F Medical Payments to Others - and which perils each form insures. HO-3 insures the dwelling on an open-peril basis but personal property on named perils; HO-5 opens both; HO-4 (renters) and HO-6 (condo unit-owners) have no Coverage A; HO-8 uses functional replacement cost for older homes. The deductible applies per occurrence to property coverages, not to Section II.
Where candidates lose points
- Special limits inside Coverage C. Money, securities, and theft of jewelry or silverware are sub-limited. The question asks what the policy pays, not what the item is worth. A scheduled personal property endorsement removes the limit and usually the deductible.
- Valuation. Replacement cost pays new-for-old without depreciation; actual cash value deducts depreciation.
- Coinsurance. Homeowners forms waive the coinsurance penalty when the limit equals at least 80% of replacement cost; dwelling forms apply it.
- Personal auto parts. A liability, B medical payments/PIP, C uninsured/underinsured motorists, D physical damage. Other-than-collision covers theft, fire, vandalism, glass, and animal strikes.
- Flood is excluded from every property form; NFIP coverage generally begins 30 days after purchase.
Worked example: the coinsurance penalty
A home would cost $400,000 to rebuild; the insured carries $240,000. The required limit at 80% is $320,000. An $80,000 loss occurs with a $1,000 deductible. Payment = ($240,000 ÷ $320,000) × $80,000 = $60,000, less the deductible = $59,000.