Personal Lines cheat sheet

State insurance departments enforce the McCarran-Ferguson Act (1945), which grants states primary authority to regulate insurance; federal antitrust laws apply only to the extent states do not regulate.

A producer license is required to sell, solicit, or negotiate insurance; licenses are issued per line (life, health, property, casualty, personal lines) and must be renewed (commonly every 2 years) with continuing education (often 24 hours per 2-year term, including ethics).

Fiduciary duty: premiums collected are held in trust; commingling with personal funds is prohibited; a producer must remit premiums promptly and maintain records for a specified period (often 3–5 years).

Utmost good faith: both parties must act honestly; a material misrepresentation on an application can allow the insurer to rescind the policy, but only if the misrepresentation is material to the risk.

Insurable interest: the policyowner must have a financial interest in the insured property at the time of loss; for life insurance, interest must exist at application.

Indemnity principle: property insurance restores the insured to pre-loss financial position, not better; valued policies (e.g., some inland marine) are an exception.

Aleatory contract: unequal exchange of values; the insurer may pay far more or less than premiums collected, depending on occurrence of a covered loss.

Adhesion contract: the insurer drafts the contract; ambiguities are construed against the insurer (contra proferentem).

Declarations page: identifies insured, policy period, limits, deductibles, covered property, and forms attached.

Insuring agreement: states the insurer's promise to pay for covered perils; may be named-peril or open-peril (all-risk).

Conditions: policy provisions that set obligations (e.g., providing proof of loss, protecting property after loss, notifying insurer promptly).

Exclusions: specify perils or property not covered; exclusions narrow coverage and may be offset by endorsements.

Definitions section: controls meaning of terms used throughout the policy; terms not defined take their plain meaning.

Coinsurance clause (property): requires insured to carry insurance to at least a specified percentage (e.g., 80%) of replacement cost; penalty formula: (limit carried ÷ limit required) × loss = payment, not exceeding the limit.

Deductible: amount of loss the insured retains; may be flat dollar or percentage (e.g., 2% of dwelling limit for wind/hail).

Loss settlement: actual cash value (ACV) = replacement cost minus depreciation; replacement cost (RC) pays to repair/replace with new property of like kind and quality without depreciation deduction.

Valued policy: pays the stated limit in the event of total loss, regardless of actual value; used in some states for real property.

HO-3 (special form) covers the dwelling and other structures on an open-peril basis; personal property is covered for named perils (broad named-peril list).

Coverage A (Dwelling) limit is the basis for many other limits: Coverage B (Other Structures) is typically 10% of A; Coverage C (Personal Property) is typically 50% of A; Coverage D (Loss of Use) is typically 30% of A.

Coverage C special limits apply per category (e.g., money, bank notes, bullion: $200; securities, deeds, manuscripts: $1,500; jewelry/watches/furs for theft: $1,500; firearms theft: $2,500; silverware theft: $2,500; business property on premises: $2,500; business property off premises: $500).

Coverage D pays additional living expenses (ALE) for the shortest time needed to repair or replace the dwelling, or until the insured permanently relocates; fair rental value applies to rented portions.

Open-peril HO-3 exclusions include: earth movement (earthquake, landslide, sinkhole unless endorsed), water damage (flood, surface water, sewer backup unless endorsed), ordinance or law, neglect, intentional loss, governmental action, and power failure originating off premises.

HO-5 (comprehensive form) provides open-peril coverage on both dwelling and personal property; HO-2 (broad form) covers dwelling and personal property for broad named perils; HO-8 (modified form) is for older homes with functional replacement cost settlement.

Replacement cost on dwelling requires insurance to at least 80% of full replacement cost; if underinsured below 80%, loss settlement is (limit carried ÷ 80% of replacement cost) × loss, subject to policy limit.

Personal property off premises is typically covered worldwide, but special limits apply; property at another residence owned by the insured is generally limited (e.g., 10% of Coverage C).

Coverage E (Personal Liability) pays sums the insured becomes legally obligated to pay because of bodily injury or property damage to others caused by an occurrence; Coverage F (Medical Payments to Others) pays reasonable medical expenses regardless of fault, subject to a per-person limit.

Coverage E limit is typically $100,000 per occurrence (minimum); Coverage F is typically $1,000 per person; no deductible applies to Coverage F.

Coverage E/F exclusions: business pursuits, professional services, intentional injury, motor vehicles (except off-road recreational vehicles on insured location), watercraft (except small sailboats/outboards under specified horsepower), aircraft, and war.

Section II additional coverages include: claim expenses, first aid expenses, damage to property of others (typically $1,000 per occurrence), and loss assessment (typically $1,000).

Conditions in Section I and II include: duties after loss (notify police, protect property, provide proof of loss, cooperate), appraisal (each party selects appraiser; umpire decides differences), and loss payment (within 60 days after agreement).

Mortgagee clause: mortgagee has right to receive loss payment to the extent of its interest; mortgagee must be notified of cancellation/nonrenewal.

No benefit to bailee: policy does not cover property while in the custody of a bailee for which the insured has other insurance.

Concealment or fraud: policy is void if insured intentionally conceals or misrepresents material facts; suit against insurer must be filed within a specified period (often one year after loss).

Dwelling Policy (DP-1, DP-2, DP-3) covers the dwelling and other structures; it does not include liability coverage (unlike homeowners).

DP-1 (basic form) covers named perils: fire, lightning, internal explosion, windstorm/hail, explosion, riot/civil commotion, aircraft, vehicles, smoke, volcanic eruption.

DP-2 (broad form) adds perils such as falling objects, weight of ice/snow/sleet, accidental discharge of water/steam, freezing, and damage from electrical current.

DP-3 (special form) covers the dwelling on an open-peril basis; personal property (Coverage C) is not included unless endorsed; Coverage C is typically 10% of Coverage A in DP forms (versus 50% in HO forms).

Dwelling policy coverage limits: Coverage B (Other Structures) is typically 10% of A; Coverage C (Personal Property) is typically 10% of A (some forms 50%); Coverage D (Fair Rental Value) is typically 20% of A.

Dwelling policy is often written on an actual cash value basis unless replacement cost endorsement is added; functional replacement cost may be available for older homes.

Other residential forms: HO-4 (renters) covers personal property and liability, not the building; HO-6 (condo/co-op) covers personal property, liability, and limited building items (e.g., alterations and improvements).

Mobile home policies (HO-7) resemble HO-3 but include specific provisions for mobile homes; flood insurance is separate through NFIP or private carriers.

Part A – Liability: covers bodily injury and property damage for which the insured is legally liable; split limits (e.g., 25/50/25) or combined single limit (CSL); defense costs are paid in addition to limits.

Part B – Medical Payments: pays reasonable medical expenses for the insured and passengers regardless of fault, typically within 3 years of the accident; limit is per person.

Covered persons for Part A include the named insured and resident family members for any auto, and any person using the covered auto with permission.

Part A exclusions include: intentional damage, property owned by or in the care of the insured, vehicles used as public livery (unless endorsed), racing, and use of a vehicle without a reasonable belief of permission.

Part B exclusions include: injuries to persons occupying a vehicle with fewer than four wheels (unless it is a covered auto), and injuries during the course of employment if workers' compensation applies.

Out-of-state coverage: if the insured operates in a state with higher minimum limits, the policy automatically provides those higher limits.

Financial responsibility laws require proof of liability insurance; minimum limits vary by state (e.g., 25/50/25 in many states).

Supplementary payments under Part A include: bail bonds (up to $250), loss of earnings (up to $200/day), and other reasonable expenses incurred at the insurer's request.

Part C – Uninsured/Underinsured Motorist (UM/UIM): covers bodily injury (and in some states property damage) caused by a driver with no insurance or insufficient limits; UM is mandatory in some states.

Part D – Coverage for Damage to Your Auto: Collision covers damage from collision with another object or overturn; Other Than Collision (comprehensive) covers theft, fire, vandalism, glass breakage, and weather.

Deductibles apply per occurrence to Part D; collision and other-than-collision deductibles may differ; glass breakage may be waived under comprehensive in some policies.

Part D exclusions: wear and tear, freezing, mechanical/electrical breakdown, road damage to tires, and custom equipment not declared (unless endorsed).

Loss settlement for Part D: actual cash value or agreed value; if repaired, insurer may pay cost of repair or replace with like kind and quality.

Duties after loss: prompt notice, protect property, allow inspection, provide records, and cooperate; failure may reduce or deny coverage.

Transportation expenses: if a covered auto is disabled due to a covered loss, policy may pay up to a specified amount per day (e.g., $20/day, $600 maximum) for rental or other transportation.

Towing and labor: optional coverage that pays for towing and roadside assistance, typically up to a stated limit.

Personal Umbrella: provides excess liability coverage above underlying homeowners and auto liability limits; typically requires underlying limits (e.g., $300,000 auto, $300,000 homeowners) and may drop down to cover some losses not covered by underlying policies.

Umbrella exclusions: business pursuits, professional liability, intentional acts, and owned aircraft; some policies cover personal injury (libel, slander) and worldwide liability.

Watercraft: may be covered under homeowners if small (e.g., sailboat ≤26 feet, outboard motor ≤25 hp); otherwise a separate watercraft policy or endorsement is needed; covers liability and physical damage.

Flood insurance: provided by NFIP (National Flood Insurance Program) or private insurers; typically 30-day waiting period; covers building and contents; exclusions include water damage from sewer backup (unless endorsed) and earth movement.

Inland Marine: covers property in transit or at temporary locations; personal articles floater (PAF) schedules jewelry, furs, cameras, and other valuables on an open-peril basis, often with no deductible and worldwide coverage.

Personal Articles Floater requires appraisal or bill of sale for scheduled items; coverage is typically replacement cost and includes mysterious disappearance.

Flood policy limits: NFIP maximum for residential building is $250,000; contents $100,000; emergency program limits are lower.

Watercraft liability may also be provided by a homeowners endorsement (e.g., HO 24 75) for small craft; larger craft require a separate policy.

Endorsements modify the policy; they take precedence over conflicting policy language; common endorsements include scheduled personal property, water backup, and replacement cost for contents.

Cancellation: pro rata refund if insurer cancels (except for nonpayment or fraud, which may be short rate in some states); short rate refund if insured cancels; state laws govern notice periods (e.g., 10 days for nonpayment, 30 days for other reasons).

Nonrenewal: insurer must provide notice (often 30–60 days) before expiration; renewal is not guaranteed.

Proof of loss: sworn statement required within a specified period (e.g., 60 days after insurer request) detailing the loss and amount claimed.

Appraisal: if insurer and insured disagree on the amount of loss, either may demand appraisal; each selects a competent appraiser; appraisers select an umpire; agreement in writing is binding.

Salvage and subrogation: insurer may take salvage after paying a total loss; subrogation allows insurer to recover from the negligent third party after paying the insured.

Claims handling: insurer must acknowledge claim promptly, investigate, and pay within a specified time after proof of loss (e.g., 30 days); unfair claim practices include denying without reasonable investigation and failing to communicate.

Replacement cost vs. actual cash value: ACV = replacement cost – depreciation; replacement cost pays full repair/replacement without depreciation deduction, often subject to policy limits and conditions.