Personal Residential Concepts
This domain tests the foundation of personal residential insurance: who is insured, what locations and property the policy reaches, how limits and deductibles operate, and how the base policy is changed by endorsements. Exam questions often hide the answer in a definition rather than a number.
Policy architecture
A homeowners policy is a package. Section I covers property; Section II covers liability and medical payments. The declarations identify the named insured, residence premises, limits, deductible, and forms. The insuring agreement grants coverage, exclusions remove it, and conditions explain duties after a loss. Standard forms define insured to include the named insured and resident relatives, plus other persons under 21 in the care of an insured. That definition matters for both property and liability claims.
Rules that drive answers
- Residence premises is the dwelling shown in the declarations, including structures and grounds at that address. Coverage also extends to certain newly acquired residences and insured locations, but only within stated limits and time frames.
- Named-peril forms list covered causes of loss. Open-peril forms cover risks of direct physical loss unless excluded. Do not assume a peril is covered just because the form is broad.
- Actual cash value is replacement cost less depreciation. Replacement cost pays new property without depreciation, but the dwelling usually must be insured to at least 80 percent of full replacement cost to receive full replacement cost settlement.
- The Section I deductible applies per loss to property coverage. It generally does not reduce Section II liability or medical payments.
- Endorsements override the base form. Read the endorsement limit, not the base policy limit.
Worked example
A dwelling has a $400,000 Coverage A limit and a $1,000 deductible. The policy requires at least 80 percent of replacement cost, or $320,000. The insured carries $300,000. A covered wind loss causes $80,000 of replacement-cost damage. Because the limit is below $320,000, a proportional settlement applies: ($300,000 / $320,000) x $80,000 = $75,000. Subtract the $1,000 deductible, and the payment is $74,000, assuming this exceeds actual cash value and no other limit applies. Carrying $320,000 would have produced $79,000 after the deductible.
Traps
Do not confuse market value with replacement cost. Do not assume contents are replacement cost; many base forms settle contents at actual cash value. Do not apply the property deductible to a liability claim. Do not overlook that a resident relative can be an insured, which can defeat a liability claim by one insured against another.