Personal Lines: Form Selection, Settlement Mechanics, and Claim Math
What this domain tests
The Personal Lines domain tests whether you can take a client's facts - occupancy, construction, values, drivers, vehicles, and ancillary exposures - pick the correct ISO-based form, and then apply that form's limits, settlement clauses, and exclusions to reach a number a claims adjuster would defend. Expect scenario items on homeowners forms and the personal auto policy (PAP), with smaller clusters on dwelling fire, watercraft, personal umbrella, and scheduled floaters.
Pick the form from the eligibility facts
- HO-3 is written on an owner-occupied one-to-four-family dwelling; Coverage A is open peril while Coverages B and C stay named peril.
- HO-5 extends open-peril treatment to contents; HO-2 is named peril throughout; HO-8 fits older homes where replacement cost far exceeds market value, using functional replacement cost and repair-cost settlement.
- HO-4 (renters) insures contents, liability, and loss of use only - no building. HO-6 (unit-owner) adds building items such as fixtures, alterations, and cabinets, plus loss assessment coverage.
- Dwelling fire DP-1/2/3 covers what the HO program will not: tenant-occupied, rental, vacant, or distressed property.
- Business on premises, farm exposure, more than four families, or roomers push the risk off the HO form to a commercial or farm policy.
Limits and settlement mechanics
Standard relationships put Coverage B at 10% of A, C at 50–70%, and D at 30%, with E and F as selected limits. Replacement-cost settlement on the dwelling requires insurance of at least 80% of full replacement cost; if the limit falls short, the loss is paid at the greater of actual cash value or (limit ÷ 80% of replacement cost) × loss, never exceeding the limit. Special category limits for money, securities, jewelry theft, firearms, and silverware sit inside Coverage C and are lifted only by scheduling.
Worked example
HO-3, Coverage A $300,000, dwelling replacement cost $400,000, partial fire loss $100,000, ACV $70,000, $1,000 deductible. The 80% target is $320,000, so the policy is underinsured. Ratio: 300,000 ÷ 320,000 = 0.9375. Applying it: 0.9375 × $100,000 = $93,750, which beats ACV of $70,000. Payment is $93,750 − $1,000 = $92,750. Had the building been a total loss, the $300,000 limit would cap recovery - the formula never exceeds the limit.
Traps that cost marks
- Calling HO-3 "all risk": Coverages B and C remain named peril.
- Ignoring that the limit caps every coinsurance calculation.
- Using HO-4 and HO-6 as if they were interchangeable.
- Merging the PAP newly acquired auto rules: 14 days for a replacement vehicle, 4 days for an additional one.
- Assuming flood, earth movement, ordinance-or-law, and water backup are covered.
- Expecting a personal umbrella to fill a gap in an excluded exposure; it sits over underlying coverage and carries its own self-insured retention.