Property Insurance Basics
Property questions test form structure, perils, and valuation arithmetic. Expect homeowners forms, commercial property coverage, coinsurance penalties, and business income.
Forms and coverage
HO-3 insures the dwelling on an open-perils basis and personal property for named perils; HO-5 opens both; HO-4 covers tenants' contents and improvements; HO-6 covers condominium unit owners; HO-8 serves older homes with functional replacement. Coverage runs A dwelling, B other structures, C personal property, D loss of use, E personal liability, F medical payments. Dwelling forms DP-1, DP-2, DP-3 follow the same logic.
Perils and valuation
Cause-of-loss forms are basic (named perils such as fire, lightning, windstorm, hail, explosion, riot, vehicles, smoke, vandalism), broad (adds water damage, falling objects, weight of ice and snow), and special (open perils, where the insurer must prove an exclusion applies). Valuation is ACV or replacement cost; homeowners forms use insurance-to-value percentages rather than coinsurance. Commercial property adds coinsurance, ordinance or law, debris removal, and business income measured by the period of restoration.
Worked example
A building valued at $600,000 carries an 80% coinsurance requirement, or $480,000, but only $400,000 of insurance. A $120,000 covered loss with a $5,000 deductible is paid as follows: the ratio is 400,000 ÷ 480,000 = 0.833; 0.833 × $120,000 = $100,000; minus the $5,000 deductible = $95,000. Had the limit been $480,000, the full $115,000 would have been paid.
Traps
Applying coinsurance to unendorsed homeowners policies; subtracting the deductible before applying the coinsurance ratio; confusing broad with special; assuming business income ends when the building reopens rather than when it could reasonably be repaired.