Homeowners Policy: Property Coverages and Exclusions
This domain tests the property side of the homeowners policy: what is insured, how much is paid, and what is excluded. Expect Coverage A through D, additional coverages, valuation, and the special limits on personal property.
Core property coverages
- Coverage A covers the dwelling and attached structures.
- Coverage B covers detached structures such as a garage or shed, usually at a percentage of Coverage A.
- Coverage C covers personal property, both on and off premises, subject to special limits for categories such as money, jewelry, silverware, and firearms.
- Coverage D pays additional living expenses or fair rental value when a covered loss makes the residence uninhabitable.
Valuation and conditions
- The HO-3 insures the dwelling on an open-peril basis and personal property on named perils; the HO-5 opens both.
- Dwelling replacement cost generally requires carrying at least 80% of full replacement cost. Below that, a loss may be settled on a proportional basis.
- Personal property is often actual cash value unless replacement-cost coverage is endorsed. ACV is replacement cost less depreciation.
- Additional coverages include debris removal, trees and shrubs, fire department service charges, and credit card forgery, each with its own limit.
Exclusions to know
Earth movement, flood and surface water, neglect, intentional loss, ordinance or law, and repeated seepage are common exclusions. Mold may be limited rather than fully excluded.
Worked example
A dwelling has a replacement cost of $500,000 and an 80% requirement of $400,000. The insured carries $350,000. A covered loss causes $100,000 of damage. Because the limit is 87.5% of the requirement ($350,000 ÷ $400,000), the insurer pays 87.5% of the loss, or $87,500, before the deductible, not the full $100,000.
Traps
Do not assume all personal property is replacement cost. Do not treat flood as a homeowners peril. Do not ignore special limits or the 80% condition.