Property Insurance Policy Coverages and Provisions
Coverage architecture
The exam tests the homeowners and commercial property forms: Coverage A dwelling, B other structures, C personal property, D loss of use; commercial forms add business income, extra expense, and ordinance or law. Know named-peril versus open-peril forms, the standard exclusions (wear and tear, faulty workmanship, vacancy, mold caps), and the conditions that decide claims: duties after loss, proof of loss, appraisal, salvage, and the mortgage clause.
Coinsurance and valuation
Coinsurance requires the limit to equal a stated percentage of the value at the time of loss. The penalty formula is: (limit carried ÷ limit required) × loss, capped at the policy limit, then subtract the deductible. Replacement cost pays new-for-old up to the limit; ACV deducts depreciation. Maryland's residual property market, the Maryland Joint Insurance Association, matters for insureds who cannot obtain voluntary coverage.
Worked example
Building limit $800,000; 80% coinsurance; value at loss $1,200,000; covered loss $200,000; deductible $5,000. Required limit = 0.80 × $1,200,000 = $960,000. The insured carried $800,000, so the penalty factor is 800,000 ÷ 960,000 = 0.8333. Payment = $200,000 × 0.8333 = $166,667 − $5,000 = $161,667. Carrying the full $960,000 would have paid $195,000 after the deductible.
Traps that cost marks
- Measuring coinsurance against the loss amount instead of the required limit.
- Forgetting that ordinance-or-law coverage is usually sublimited.
- Missing matching obligations for undamaged siding or shingles.
- Overlooking the mortgage clause, which protects the lender's interest separately.