Study guide
4.3 Section I: Property Coverages
Property & Casualty Insurance Exam
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1 Introduction
0.1 About the Property & Casualty Exam 0.2 How to Use This Course
2 Chapter 1: Insurance Fundamentals
1.1 Risk and Risk Management 1.2 Types of Risk 1.3 Principles of Insurance 1.4 The Insurance Contract 1.5 Policy Structure and Components
3 Chapter 2: Property Insurance Concepts
2.1 Property Coverage Basics 2.2 Perils, Hazards, and Exclusions 2.3 Valuation Methods 2.4 Coinsurance and Insurance to Value 2.5 Deductibles and Policy Limits
4 Chapter 3: Dwelling Policies
3.1 Dwelling Policy Overview 3.2 Dwelling Policy Forms (DP-1, DP-2, DP-3) 3.3 Dwelling Property Coverages 3.4 Dwelling Exclusions and Conditions
5 Chapter 4: Homeowners Policies
4.1 Homeowners Policy Overview 4.2 Homeowners Policy Forms (HO-2 through HO-8) 4.3 Section I: Property Coverages 4.4 Section II: Liability Coverages 4.5 Homeowners Exclusions 4.6 Homeowners Conditions 4.7 Common Homeowners Endorsements
6 Chapter 5: Personal Auto Policy
5.1 Personal Auto Policy Overview 5.2 Part A: Liability Coverage 5.3 Part B: Medical Payments Coverage 5.4 Part C: Uninsured/Underinsured Motorists 5.5 Part D: Physical Damage Coverage 5.6 PAP Exclusions 5.7 No-Fault Insurance and PIP
7 Chapter 6: Liability Insurance Concepts
6.1 Liability Insurance Basics 6.2 Negligence and Tort Law 6.3 Types of Legal Liability 6.4 Personal Umbrella Policies
8 Chapter 7: Commercial Property Insurance
7.1 Commercial Package Policy (CPP) 7.2 Building and Personal Property Coverage Form 7.3 Causes of Loss Forms 7.4 Business Income Coverage 7.5 Businessowners Policy (BOP)
9 Chapter 8: Commercial General Liability
8.1 CGL Policy Overview 8.2 Coverage A: Bodily Injury and Property Damage 8.3 Coverage B: Personal and Advertising Injury 8.4 Coverage C: Medical Payments 8.5 CGL Exclusions 8.6 CGL Limits and Conditions
10 Chapter 9: Commercial Auto Insurance
9.1 Business Auto Policy Overview 9.2 Covered Auto Designation Symbols 9.3 BAP Liability Coverage 9.4 BAP Physical Damage Coverage 9.5 Garage and Truckers Coverage Forms
11 Chapter 10: Workers Compensation
10.1 Workers Compensation Overview 10.2 Part One: Workers Compensation Insurance 10.3 Part Two: Employers Liability 10.4 Workers Compensation Exclusions 10.5 Other States and USL&H Coverage
12 Chapter 11: Other Commercial Lines
11.1 Inland Marine Insurance 11.2 Ocean Marine Insurance 11.3 Commercial Crime Insurance 11.4 Surety Bonds 11.5 National Flood Insurance Program 11.6 Professional Liability Insurance 11.7 Commercial Umbrella and Excess Liability 11.8 Boatowners and Personal Watercraft Insurance 11.9 Farm and Ranch Insurance 11.10 Mobile Home and Manufactured Housing Insurance 11.11 Title Insurance
13 Chapter 12: Insurance Regulations and Ethics
12.1 Producer Licensing 12.2 Producer Authority and Responsibilities 12.3 Unfair Trade Practices 12.4 Claims Settlement Practices 12.5 State Insurance Department 12.6 Penalties and Disciplinary Actions
4.3 Section I: Property Coverages
Key Takeaways Explain This Topic AI
Coverage A (Dwelling) insures the house, attached structures, and built-in fixtures; it should equal REPLACEMENT COST, not market value, and land is never insured
Coverage B (Other Structures) is automatically 10% of Coverage A as ADDITIONAL insurance; structures used for business or rented to others are excluded
Coverage C (Personal Property) is typically 50% of Coverage A and is subject to SPECIAL LIMITS: money $200, jewelry/furs theft $1,500, firearms theft $2,500, silverware theft $2,500
Coverage C follows the insured WORLDWIDE; property usually away from the residence is capped at 10% of Coverage C (minimum $1,000)
Coverage D (Loss of Use) pays Additional Living Expense or Fair Rental Value when a covered loss makes the home uninhabitable, 30% of Coverage A under ISO's homeowners program (some insurers use 20%)
Last updated: October 2026
Section I insures the insured's property — both real property (structures) and personal property (contents) — plus the cost of living elsewhere after a loss. The four coverages are tied together by percentages of Coverage A , so set Coverage A correctly and the others scale automatically.
Coverage A — Dwelling
Coverage A insures the dwelling on the residence premises, including structures attached to it, materials and supplies on or next to the premises for construction, and building fixtures and systems (built-in cabinets, wiring, plumbing, central air, in-ground pools attached to the structure).
What Coverage A does NOT insure:
Land — never insured; it cannot be destroyed by a covered peril. If a slope is excavated by a covered peril, the policy pays to replace the structure, not the dirt.
Detached structures (those fall under Coverage B).
Personal property (Coverage C).
Critical distinction: Coverage A should equal replacement cost (cost to rebuild at today's prices), not market value . A home may sell for $400,000 but cost only $320,000 to rebuild because market value includes land and location.
Coverage B — Other Structures
Coverage B insures detached structures: a detached garage, a tool shed, a fence, a gazebo, a driveway, or a detached guest cottage. The standard limit is 10% of Coverage A and it is additional insurance (it does not erode Coverage A).
- Coverage A Coverage B (10%)
- $300,000 $30,000
- $400,000 $40,000
- $500,000 $50,000
Coverage B excludes any detached structure used for business or rented to others (other than as a private garage). That exposure needs a Dwelling or commercial policy.
Coverage C — Personal Property
Coverage C insures the insured's contents and belongings anywhere in the world. The standard limit is 50% of Coverage A on HO-3 (often raised to 70-75% by endorsement). It is written on a named-peril basis under HO-3.
Special Limits of Liability (Sublimits)
The exam loves these because they catch the unwary. Certain categories are capped no matter how high Coverage C is:
- Category Special Limit
- Money, bank notes, coins, bullion $200
- Securities, deeds, manuscripts, tickets $1,500
- Jewelry, watches, furs (THEFT only) $1,500
- Firearms (THEFT only) $2,500
- Silverware, goldware, pewterware (THEFT only) $2,500
- Business personal property on premises $2,500
- Business personal property away from premises $1,500
- Watercraft including trailers/equipment $1,500
Exam Alert: A $10,000 diamond ring stolen from the home is paid only $1,500 under the standard policy. To insure it fully, the owner needs a Scheduled Personal Property endorsement (covered in 4.7).
Worldwide and Off-Premises Coverage
Coverage C follows the insured worldwide, but property usually situated away from the residence (e.g., a student's belongings at a dorm) is limited to 10% of Coverage C, subject to a $1,000 minimum . A laptop stolen from a hotel during a trip is at-home property temporarily away and gets the full limit; belongings kept long-term off premises get the 10% cap.
Coverage D — Loss of Use
Coverage D pays when a covered Section I loss makes the home uninhabitable . The ISO form prints no percentage; the declarations limit comes from ISO's homeowners rules, which set it at 30% of Coverage A on the HO-3. Some insurers and state consumer guides (California, Maine) show 20%. It has two parts:
Component Who Uses It What It Pays
Additional Living Expense (ALE) The occupant The increase over normal living costs to maintain the household's standard of living
- Fair Rental Value If part of the home was rented to others The lost rental income, less expenses that stop
- How ALE Is Calculated
ALE pays only the extra cost, not total cost:
- Normal monthly housing cost: $2,000
- Temporary rental + extra commuting: $3,200
- ALE paid: $3,200 − $2,000 = $1,200/month
- Percentage Relationships (Memorize)
- Coverage HO-3 Standard Type
- A — Dwelling 100% (base) —
- B — Other Structures 10% of A Additional
- C — Personal Property 50% of A Part of total
- D — Loss of Use 30% of A (ISO default; some insurers 20%) Additional
Each percentage can be raised by endorsement for extra premium.
Additional Coverages Built Into Section I
Beyond A through D, the homeowners form grants several smaller additional coverages the exam likes to test. Debris removal pays the reasonable cost to clear away damaged property after a covered loss. Reasonable repairs reimburses temporary measures the insured takes to protect property from further damage. Trees, shrubs, and plants are covered for specific named perils (such as fire, lightning, vandalism, or theft — but not wind), usually limited to 5% of Coverage A with a per-item cap. Credit card, forgery, and counterfeit money coverage provides a small limit (commonly $500) for fraudulent charges.
Fire department service charge reimburses up to a stated amount when a department is called to save covered property.
ACV vs. Replacement Cost on Contents
A frequent contents question contrasts settlement methods. The default Coverage C basis is actual cash value , which subtracts depreciation. A producer should explain that adding replacement cost on contents keeps the same Coverage C limit but removes the depreciation deduction, so a destroyed five-year-old sofa is paid what a comparable new sofa costs rather than its depreciated value. The trade-off is a higher premium and the requirement that the insured actually replace the item to collect the full amount.