Homeowners Insurance

Question 1

The most popular form homeowners policy

Answer 1

Homeowners Policy Special Form 3 (HO 3)

Includes A,B,C and D coverage.

Question 2

Under Homeowners Coverage D, 3 benefits are provided:

Answer 2

• Additional Living Expense (ALE)
• Fair Rental Value
• Prohibited Use

Question 3

a covered loss under the property section results in the residence premises being unfit to live in, the insurer covers any necessary increase in living expenses to allow the household to maintain its normal standard of living while repairs are being made or until the named insured moves to another location.

Answer 3

ALE

Question 4

If a loss covered under the property section makes it impossible to live in portions of the residence premises that are rented to others by the named insured, the insurer covers the ___

Answer 4

Fair Rental Value Coverage

Question 5

Federal, state, or local government agency, or the state police—can prohibit residents from accessing their undamaged homes in a damaged neighborhood or community. The insured’s resulting additional living expenses and rents or rental value loss are covered under the prohibited use provision for up to two weeks.

Answer 5

Civil Authority Prohibits Use Coverage

Question 6

This theory, adopted by some courts, holds that, if a given loss has more than one cause, and at least one of the causes is not excluded, the loss is covered even if the policy specifically excludes another cause of the loss.

Answer 6

Concurrent Causation

Question 7

Seven homeowners policy conditions affect both property and liability coverages:

Answer 7

• Liberalization clause
• Waiver or change of policy provisions
• Cancellation
• Nonrenewal
• Assignment
• Subrogation
• Death

Question 8

If the insurer makes a change that expands coverage under the policy form without an additional premium charge, the change automatically applies to the named insured’s insurance on the date the change is implemented.

Answer 8

Liberalization Clause

Question 9

The transfer of rights from one party to a contract to a third party. Provides that any assignment of the policy will be invalid unless the insurer provides its written consent for the assignment.

Answer 9

The assignment condition

Question 10

The insured is obligated to fulfill certain duties after a loss occurs. If the insured fails to comply with these duties, and this failure prejudices the insurer’s case, coverage can be denied. The insured has a duty to

Answer 10

• provide prompt notice to insurer or its agent;
• notify police if a theft loss occurs;
• notify credit card or electronic fund transfer card company;
• protect property from further harm;
• cooperate with insurer in the investigation;
• prepare an inventory of damaged personal property;
• if requested by the insurer, show damaged property, provide insurer with any documentation, and submit to examination under oath; and
• provide sworn proof of loss to insurer within 60 days after requested.

Question 11

Loss Settlement: Loss to property of the following types is settled on an actual cash value (ACV) basis at the time of the loss

Answer 11

•personal property
•awnings, carpeting, household appliances, outdoor
antennas, and any outdoor equipment, whether
attached to the buildings or not
•structures that are not buildings
•grave markers, including mausoleums

Question 12

The homeowners insurance form provides replacement cost coverage on buildings, with no deduction for depreciation, provided that the insured purchases a limit of insurance that is equal to at least 80 percent of the full replacement value of the building at the time of the loss. The insurer’s actual payment will then be the lowest of

Answer 12

• the limit of insurance that applies to the building;
• the replacement cost of that particular section of the building damaged, with material of like kind and quality and for like use; or
• the necessary amount actually spent to repair or replace the damaged building.

Question 13

If, at the time of the loss, the amount of insurance on the policy covering the damaged building is less than 80 percent of the full replacement cost of the building just before the loss, the insurer will pay the larger of the following amounts, but not more than the limit of insurance under this policy applicable to the building:

Answer 13

• the actual cash value of that particular section of the building damaged; or
• the proportion of the cost to repair or replace, after application of any deductible and without deduction for depreciation, that particular part of the structure damaged, which the total amount of insurance in this policy on the damaged structure bears to 80 percent of the replacement cost of the structure.

Question 14

The following items, which are not readily damaged by most perils, should not be included in the determination of the amount of insurance necessary to equal 80 percent of the full replacement cost of the building just prior to the loss

Answer 14

• excavations, footings, foundations, piers, or any other structures or devices that support all or part of the building, which are below the undersurface of the lowest basement floor;
• the supports described in the first bullet that are below the surface of the ground inside the foundation walls, if there is no basement; and
• underground flues, pipes, wiring, and drains.

Question 15

Comes into play when a loss occurs to an item that is part of a pair or set. In that event, the insurer can either (1) repair or replace any part to restore the pair or set to its value prior to the loss; or (2) pay the difference between the actual cash value of the property before and after the loss. This clause normally pertains to personal property, such as to a matching pair or set of drapes, chairs, or earrings.

Answer 15

Loss to a pair or set.

Question 16

This condition allows the insurer to repair or replace any damaged or stolen property instead of making a loss payment directly to the insured, as long as the insurer provides the insured written notice within ___ after receipt of the insured’s signed, sworn proof of loss.

Answer 16

30 days

Question 17

A homeowners policy can be modified by adding endorsements that extend coverage. Some of these endorsements are for:

Answer 17

• personal property replacement cost loss settlement
• scheduled personal property endorsements
• earthquake
• limited fungi, wet or dry rot, or bacteria coverage
• identity fraud expense coverage

Question 18

The unendorsed homeowners policy includes only limited amounts of coverage on certain items. A scheduled personal property endorsement provides expanded coverage for the following 9 types of personal property, subject to certain restrictions:

Answer 18

• jewelry
• furs and garments
• cameras and related items
• musical instruments and related items
• silverware and related items
• golfer’s equipment
• fine arts
• postage stamps
• rare and current coins

Question 19

Two scheduled personal property endorsements are available

Answer 19

The Scheduled Personal Property Endorsement (with Agreed Value Loss Settlement) (HO 04 60)
Scheduled Personal Property Endorsement (HO 04 61)

Question 20

Scheduled personal property endorsement: pays the full agreed amount specified in the schedule, regardless of what an appraisal might show.

Answer 20

The Scheduled Personal Property Endorsement (with Agreed Value Loss Settlement) (HO 04 60)

Question 21

Scheduled personal property endorsement: does not provide agreed value loss settlement. Rather, for most types of property, the insurer agrees to pay the lowest of: 
•the cost of repairing the item
•the item’s actual cash value
•the item’s replacement cost
•the applicable policy limit

Answer 21

Scheduled Personal Property Endorsement (HO 04 61)

Question 22

Exclusions in the earthquake endorsement eliminate coverage for:

Answer 22

• any exterior masonry veneer;
• loss resulting directly or indirectly from flood of any nature or tidal wave, whether it was caused by, resulting from, contributed to by, or aggravated by an earthquake; and
• costs associated with filling land, as the result of an earthquake.