Homeowners Policy Property Coverages
This domain tests Section I property coverages: the four main limits, additional coverages, internal special limits, covered perils, exclusions, and loss settlement. Expect questions that require you to categorize damaged property before you calculate payment.
The four property coverages
Coverage A is the dwelling on the residence premises. Coverage B is other structures, typically detached garages, fences, and sheds, with a base limit that is commonly 10 percent of Coverage A. Coverage C is personal property, commonly 50 percent of Coverage A on standard forms. Coverage D is loss of use or fair rental value, commonly 30 percent of Coverage A. These percentages are base-form defaults; the declarations or an endorsement can change them. Coverage D responds when a covered peril makes the residence premises uninhabitable, paying necessary increase in living expenses or fair rental value for rented portions.
Additional coverages and special limits
Additional coverages include debris removal, reasonable repairs, trees and shrubs, fire department service charges, credit card and forgery, loss assessment, and collapse. They often have their own caps and may not increase the Coverage A limit. Coverage C contains internal limits that apply within the total contents limit. Common examples include a low cap for money, a theft cap for jewelry, watches, and furs, a theft cap for firearms, a theft cap for silverware, and a cap for business property. The limits are sublimits, not additional amounts of insurance.
Perils and exclusions
HO-3 is open peril on Coverages A and B and named peril on Coverage C. HO-5 is open peril on A, B, and C. HO-2 is broad named peril. Standard exclusions include earth movement, flood and surface water, sewer backup unless endorsed, ordinance or law, neglect, intentional loss, faulty workmanship, and certain mold. Flood requires a separate policy or a specific endorsement where available.
Worked example
An HO-3 has Coverage A of $400,000, Coverage B of $40,000, and a $1,000 deductible. A covered windstorm destroys a detached garage and fences. The replacement cost is $55,000 for the garage and $5,000 for the fences. All of this is Coverage B, so the most available is $40,000. The payment is $40,000 less the $1,000 deductible, or $39,000. The excess $20,000 is not shifted to Coverage A merely because the garage is on the same lot.
Traps
Do not treat the Coverage B percentage as unlimited. Do not add Coverage C special limits on top of the contents limit. Do not describe the land as insured dwelling value. Do not assume trees, shrubs, or fences are fully covered. Do not assume contents are replacement cost unless the form or endorsement says so.