Property and Casualty Insurance Basics
What this domain tests
This domain covers how property and casualty policies are built and how coverage triggers. Expect policy structure, property valuation, coinsurance, liability, homeowners and commercial forms, and common exclusions.
Core rules and concepts
- Policy anatomy: declarations, insuring agreement, conditions, exclusions, and definitions. Exclusions narrow coverage; exceptions to exclusions restore it.
- Property versus liability: property coverage pays for direct physical loss to covered property. Liability coverage pays sums the insured becomes legally obligated to pay because of bodily injury or property damage to others, plus defense costs.
- Homeowners forms: HO-3 covers the dwelling on an open-peril basis and personal property on named perils. HO-5 broadens personal property to open peril. Renters use HO-4; condominium owners use HO-6.
- Commercial property coinsurance: the insured must carry a limit at least equal to a stated percentage of value (often 80%). A penalty applies when the limit is too low.
- Commercial general liability (CGL): occurrence-based coverage for bodily injury and property damage, plus personal and advertising injury. Professional liability and auto liability are separate.
- Common exclusions: intentional loss, earth movement, flood, ordinance or law, neglect, and wear and tear. Anti-concurrent causation clauses can bar coverage when excluded and covered causes combine.
Worked example
A commercial building has an 80% coinsurance clause, an $800,000 value, and a $400,000 limit. A $100,000 covered loss occurs. The coinsurance requirement is $640,000. Because the insured carried only $400,000, recovery is $100,000 × ($400,000 / $640,000) = $62,500, minus the deductible. If the limit had been at least $640,000, the full $100,000 less deductible would be payable, subject to policy limits.
Traps that cost marks
Do not apply commercial coinsurance to a standard HO-3. Do not treat liability limits as payment for the insured’s own property. Do not assume “replacement cost” means new for old without conditions; most forms require repair or replacement. Watch for exclusions that apply regardless of cause.