Property and Casualty Insurance
What the exam tests
Property and Casualty Insurance tests homeowners and auto coverage, property valuation, coinsurance, deductibles, and common exclusions. Expect a coinsurance-penalty calculation.
Core rules
- HO-3 covers the dwelling on an open-peril basis and personal property on named perils; HO-5 covers both on an open-peril basis.
- Coverage A is the dwelling, B other structures, C personal property, D loss of use. Section II provides personal liability and medical payments to others.
- Replacement cost pays to repair or replace without depreciation; actual cash value subtracts depreciation. A coinsurance clause requires insurance to at least a stated percentage of replacement cost.
- Personal auto: liability, collision, comprehensive, uninsured/underinsured motorist, medical payments, and PIP where required. No-fault states restrict tort claims and use PIP.
- Flood is excluded from homeowners policies and is insured separately, often through NFIP. Earth movement and business pursuits are typically excluded.
Worked example
An 80% coinsurance clause applies to a $500,000 replacement-cost home. Required insurance is $400,000, but the owner carries $300,000. A $100,000 loss occurs with a $1,000 deductible. Recovery = ($300,000 ÷ $400,000) × $100,000 = $75,000, less $1,000 = $74,000. Had the owner carried $400,000, the full $99,000 after deductible would be paid.
Traps that cost marks
Do not use market value as replacement cost. Do not forget the coinsurance penalty. Homeowners policies do not cover flood. UM/UIM is not collision coverage. Business use of a home may be excluded.