Homeowners insurance on the P&C exam

Work percentages from Coverage A unless the stem names an HO-4 or HO-6. For a special limit, check the cause of loss before the dollar amount.

Notes on each optionCommit to an answer first. The notes under the item then open on every option: what rules it in or out, and the one word that splits the runner-up from the key.

1. Item 01

   A storm tears a hole in Leo's roof, and he pays a contractor $600 to tarp it and prevent more rain damage. How does his HO-3 treat the $600?

   • AIt is paid in addition to the Coverage A limit
   • BIt is paid as reasonable repairs within the A limit
   • CIt is not paid because protecting property is his duty
   • DIt is not paid because the insurer did not approve it first
   1. ADebris removal can add money on top of the limit; reasonable repairs cannot, so 'in addition to' borrows the wrong additional coverage.
   2. BCorrect: the HO-3 Reasonable Repairs additional coverage pays the cost of measures taken solely to protect covered property from further damage, but it does not increase the Coverage A limit.
   3. CProtecting the property is one of his duties after loss, and the policy pays the reasonable cost of doing it, so the duty does not cancel the payment.
   4. DThe HO-3 does not require prior approval for emergency measures to protect property from further damage, so 'not approved first' is an invented condition.

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2. Item 02

   Section I of a standard HO-3 includes all of the following coverages EXCEPT

   • ACoverage F – Medical Payments
   • BCoverage C – Personal Property
   • CCoverage D – Loss of Use (additional living expense)
   • DCoverage B – Other Structures
   1. ACorrect: Coverage F, Medical Payments to Others, sits in Section II with Coverage E, Personal Liability, not in the Section I property coverages.
   2. BCoverage C – Personal Property is a Section I property coverage, so it does not fit the EXCEPT.
   3. CCoverage D – Loss of Use is in Section I because it follows damage to the residence, even though it pays expenses rather than repairs.
   4. DCoverage B – Other Structures is a Section I property coverage for detached structures such as garages and sheds.

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3. Item 03

   Lin's home has Coverage A of $400,000 and a 2% windstorm/hail deductible. A windstorm causes $25,000 of damage. How much will the insurer pay?

   • A$25,000
   • B$24,000
   • C$24,500
   • D$17,000
   1. A$25,000 ignores the deductible entirely.
   2. B$24,000 subtracts a flat $1,000 deductible, not the 2% wind/hail deductible.
   3. C$24,500 takes 2% of the loss ($500); the percentage deductible is based on the Coverage A limit, not the loss.
   4. DCorrect: 2% × $400,000 Coverage A = $8,000 deductible, so the insurer pays $25,000 − $8,000 = $17,000.

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4. Item 04

   Fatima's HO-3 has a Coverage A limit of $300,000. After a covered fire, the building code requires $40,000 of upgrades beyond the cost of repair. How much will her policy pay for the code upgrades?

   • A$0
   • B$30,000
   • C$15,000
   • D$40,000
   1. A$0 is wrong because the 2011 HO-3 includes an Ordinance or Law additional coverage for code-required costs after a covered loss.
   2. BCorrect: Ordinance or Law lets her use up to 10% of Coverage A for code upgrades: 10% × $300,000 = $30,000.
   3. C$15,000 is 5% of Coverage A, the extra debris removal amount, not the ordinance or law amount.
   4. DThe full $40,000 exceeds the 10% ordinance or law amount; paying it all would take an increased-limit endorsement.

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5. Item 05

   Ella runs a small craft business from home. A fire destroys $4,000 of her business inventory in the house, and a $2,000 laptop used mainly for the business is stolen from her car. Under a 2011 HO-3, how much is paid, ignoring the deductible?

   • A$6,000
   • B$2,500
   • C$4,000
   • D$5,000
   1. A$6,000 pays both losses in full and ignores the special limits on business property.
   2. B$2,500 pays only the on-premises business limit and leaves out the $1,500 for the laptop away from home.
   3. CCorrect: business property is limited to $2,500 on the residence premises and the laptop away from home is capped at $1,500, so $2,500 + $1,500 = $4,000.
   4. D$5,000 applies the $2,500 on-premises limit to the off-premises laptop too; away from the premises the cap is $1,500.

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6. Item 06

   Which set of standard HO-3 coverage percentages, each based on Coverage A, is CORRECT?

   • AB 20%, C 50%, D 30%
   • BB 10%, C 50%, D 20%
   • CB 10%, C 70%, D 20%
   • DB 10%, C 50%, D 30%
   1. AOther Structures is 10% of A, not 20%; that set gets Coverage B wrong.
   2. BLoss of Use in the HO-3 is 30% of A; 20% is the dwelling-policy figure for fair rental value plus additional living expense.
   3. CPersonal Property is 50% of A, not 70%, and Loss of Use is 30%, not 20%.
   4. DCorrect: in the HO-3, Coverage B is 10%, Coverage C is 50% and Coverage D is 30% of the Coverage A limit.

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7. Item 07

   Under Coverage F (medical payments to others) of an ISO HO-3, all of the following injuries would be covered EXCEPT:

   • AA neighbor's child breaks an arm on his fence
   • BA party guest falls on his stairs and is hurt
   • CHis babysitter cuts herself while cooking there
   • DThe named insured breaks a hip on his stairs
   1. AA neighbor's child injured on the insured location is exactly who Coverage F protects, so this loss is covered.
   2. BA guest hurt on the premises is a covered 'other' under Coverage F, regardless of fault.
   3. CA residence employee such as a babysitter injured at the home is covered under Coverage F.
   4. DCorrect: Coverage F never pays for injury to the named insured or regular household residents; it is medical payments to OTHERS.

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8. Item 08

   After a burglary at his home, which duty does Paul's HO-3 require of him?

   • ANotify the police about the theft
   • BReplace the stolen items before claiming
   • CSend sworn proof of loss within 10 days
   • DGet three repair estimates before reporting
   1. ACorrect: the HO-3 duties after loss require notice to the police in case of theft, along with prompt notice to the insurer.
   2. BThe policy never requires replacing items before a claim; replacement-cost payment can wait for repair, but the claim does not.
   3. CSworn proof of loss is due within 60 days after the insurer asks for it, not within 10 days of the loss.
   4. DGetting multiple estimates before reporting is not a policy duty, and it would delay the prompt notice the policy does require.

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9. Item 09

   Mrs. Dallas insures her home under an HO-3 with a Coverage A limit of $350,000. If she accepts the standard percentages, what is her Coverage C – Personal Property limit?

   • A$35,000
   • B$280,000
   • C$105,000
   • D$175,000
   1. A$35,000 is 10% of A, the Coverage B (Other Structures) figure.
   2. B$280,000 is 80% of A, the insurance-to-value threshold for replacement cost, not a coverage percentage.
   3. C$105,000 is 30% of A, the Coverage D (Loss of Use) figure.
   4. DCorrect: Coverage C is 50% of Coverage A: 50% × $350,000 = $175,000.

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10. Item 10

    Tim owns an all-terrain vehicle and insures his home under an HO-3 (2011). He injures a hiker while riding the ATV on public trails far from home. His Section II coverage:

    • AApplies, because ATVs aren't motor vehicles
    • BApplies, since he's a named insured
    • CDoes not apply off the insured location
    • DApplies only to medical payments
    1. AThe 2011 form treats an off-road recreational vehicle as a motor vehicle, so 'ATVs aren't motor vehicles' is the trap.
    2. BBeing a named insured does not override the motor vehicle exclusion; who you are does not fix where the ATV was.
    3. CCorrect: liability for an owned ATV applies only while it is on an insured location, so an injury on public trails far from home is not covered.
    4. DMedical payments to others follows the same motor vehicle exclusion, so it does not survive where liability is excluded.

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11. Item 11

    Tom's HO-3 has a Coverage C limit of $100,000. Thieves steal $15,000 of furnishings usually kept at his lakeside vacation home. Ignoring the deductible, how much will the policy pay?

    • A$1,000
    • B$15,000
    • C$1,500
    • D$10,000
    1. A$1,000 is the floor of the other-residence limit, which applies only when 10% of C is smaller.
    2. BPaying the full $15,000 ignores the limit on property usually kept at another residence.
    3. C$1,500 borrows a special theft limit (jewelry, firearms-type thinking) that has nothing to do with furnishings.
    4. DCorrect: property usually kept at another residence is limited to the greater of 10% of Coverage C or $1,000: 10% × $100,000 = $10,000.

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12. Item 12

    Burglars steal $300 in cash and a stamp collection worth $2,000 from Vic's home. Under a 2011 HO-3 with no endorsements, how much will the policy pay, ignoring the deductible?

    • A$1,800
    • B$1,700
    • C$1,500
    • D$2,300
    1. A$1,800 pays the $300 cash in full, but money is capped at $200.
    2. BCorrect: the 2011 HO-3 limits money to $200 and stamps (with securities) to $1,500, so $200 + $1,500 = $1,700.
    3. C$1,500 applies only the stamp limit and drops the $200 paid for money.
    4. D$2,300 pays both items in full and ignores both special limits.

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13. Item 13

    Sam's HO-3 has a Coverage A limit of $250,000. A fire destroys his detached garage, which will cost $30,000 to rebuild. Ignoring the deductible, how much will Coverage B pay?

    • A$75,000
    • B$30,000
    • C$12,500
    • D$25,000
    1. A$75,000 is 30% of A, the Coverage D figure, not Coverage B.
    2. B$30,000 is the full rebuild cost, but Coverage B is capped at 10% of A unless the limit is raised.
    3. C$12,500 is 5% of A, which matches the extra debris removal amount, not Other Structures.
    4. DCorrect: Coverage B is 10% of Coverage A: 10% × $250,000 = $25,000, paid in addition to the dwelling limit.

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14. Item 14

    Water backs up through the basement floor drain in Luis's home and ruins $10,000 of furniture. His HO-3 has no endorsements. How will the loss be handled?

    • AIt is covered because the HO-3 is open perils
    • BIt is covered only up to $2,500
    • CIt is covered as accidental discharge
    • DIt is not covered
    1. A'Open perils' does not beat an exclusion, and Coverage C is named perils anyway; the water exclusion removes sewer and drain backup.
    2. BThere is no $2,500 backup sublimit in the base HO-3; that kind of amount comes only from a water backup endorsement.
    3. CAccidental discharge covers water escaping from plumbing or appliances inside the home, not water backing up from a drain.
    4. DCorrect: the HO-3 water exclusion removes water that backs up through sewers or drains, so without a backup endorsement the loss is not covered.

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15. Item 15

    Which is a key difference between the ISO HO-3 and the ISO DP-3?

    • AOnly the HO-3 includes personal liability coverage
    • BOnly the DP-3 covers personal property on an open-perils basis
    • COnly the HO-3 covers other structures
    • DOnly the DP-3 includes medical payments to others
    1. ACorrect: the HO-3 includes Section II personal liability and medical payments, while the DP-3 has none and needs a Personal Liability Supplement.
    2. BBoth forms cover personal property on a named-perils (broad) basis, so open-perils contents is not a DP-3 advantage.
    3. CBoth the HO-3 and the DP-3 cover other structures, so this is not a difference.
    4. DThe DP-3 has no medical payments to others at all; that coverage lives in the HO-3 or the Personal Liability Supplement.

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16. Item 16

    A river overflows and floods the first floor of Maya's home, which is insured under an HO-3 with a water backup endorsement. How will the HO-3 respond?

    • AIt pays under the water backup endorsement
    • BIt pays under Coverage A as an open peril
    • CIt pays only additional living expense
    • DThe flood damage is excluded
    1. AA water backup endorsement covers water entering through sewers or drains, not a river overflowing.
    2. BOpen perils still has exclusions, and flood is one of them, so Coverage A does not respond.
    3. CLoss of Use pays only after a covered peril makes the home unlivable, and flood is not covered.
    4. DCorrect: flood, including overflow of a body of water, is excluded under the HO-3; it needs an NFIP or private flood policy.

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17. Item 17

    A wildfire damages neighboring homes, and the civil authority bars Ana from her undamaged house. Under the 2011 HO-3, for how long will Coverage D pay her additional living expense?

    • AUp to 30 days
    • BUp to 72 hours
    • CUp to 12 months
    • DUp to two weeks
    1. A30 days is not the civil authority period; it echoes other 30-day rules such as property removed.
    2. B72 hours is the commercial business income waiting period, not a homeowners figure.
    3. C12 months is the BOP business income period, not the HO-3 civil authority limit.
    4. DCorrect: under the 2011 HO-3, Civil Authority Prohibits Use pays additional living expense for no more than two weeks.

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18. Item 18

    The Kims are moving to a new principal residence. Ten days after they begin moving, a fire destroys $40,000 of their belongings at the new house. Their HO-3 has a Coverage C limit of $100,000. Ignoring the deductible, how much will the policy pay?

    • A$0
    • B$1,000
    • C$40,000
    • D$10,000
    1. A$0 wrongly treats belongings at the new home as uninsured; the HO-3 follows them during the move.
    2. B$1,000 is only the floor of the other-residence limit, and that limit does not apply here at all.
    3. CCorrect: the 10%-of-C other-residence limit does not apply to property in a newly acquired principal residence for 30 days after moving begins, so the full $40,000 is paid.
    4. D$10,000 applies the 10%-of-C other-residence limit, which is waived for the first 30 days at a new principal residence.

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19. Item 19

    Bruce and Patty's home has a replacement cost of $1,000,000, and their policy requires insurance to 90% of that value. They carry $600,000. A covered loss costs $300,000, and there is no deductible. How much of the loss must they pay themselves?

    • A$120,000
    • B$0
    • C$200,000
    • D$100,000
    1. A$120,000 uses 100% of the value as the requirement; the policy asks for 90%.
    2. B$0 assumes any loss under the limit is paid in full, ignoring the insurance-to-value requirement.
    3. C$200,000 is the insurer's share, not what Bruce and Patty pay themselves.
    4. DCorrect: required = 90% × $1,000,000 = $900,000; insurer pays $600,000 ÷ $900,000 × $300,000 = $200,000, leaving them $100,000.

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20. Item 20

    Bryce owns antique firearms worth $20,000. His 2011 ISO HO-3 limits theft of firearms to $2,500. What is the BEST way to insure the collection fully?

    • ASchedule them by endorsement
    • BRaise the Coverage C limit
    • CBuy a personal umbrella policy
    • DAdd an inflation guard endorsement
    1. ACorrect: scheduling the firearms by endorsement (or a personal articles floater) covers each item for a stated amount on an open-perils basis, free of the $2,500 theft limit.
    2. BRaising Coverage C does not raise a special limit; the $2,500 theft cap stays.
    3. CAn umbrella is liability coverage and does nothing for theft of your own property.
    4. DInflation guard raises limits for rising costs; it cannot lift a fixed special limit.

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