1.5 Policy Structure and Components

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

1.5 Policy Structure and Components

Key Takeaways Explain This Topic AI

Every policy is built from six parts: Declarations, Definitions, Insuring Agreement, Exclusions, Conditions, and Endorsements

The Declarations (Dec) page personalizes the standard form — named insured, what is covered, limits, deductibles, premium, and policy period

Named-perils coverage protects only listed perils (insured proves the cause); open-perils/all-risk covers everything except stated exclusions (insurer proves the exclusion)

Exclusions remove coverage — common ones include flood, earthquake, war, intentional acts, wear and tear, and ordinance or law

• Endorsements (riders) add, delete, or change coverage and override conflicting language in the base form
• Last updated: June 2026

Reading a Policy Like an Underwriter

Every standardized policy — most use Insurance Services Office (ISO) forms — is assembled from the same building blocks. The exam asks you to locate information in the right part and to apply the burden-of-proof rule that separates named from open perils.

The Six Parts of an Insurance Policy

Memorize with DICE-DE : D eclarations, I nsuring agreement, C onditions, E xclusions, plus D efinitions and E ndorsements.

1. Declarations (the "Dec" page)

The personalized cover sheet that adapts the standard form to one insured.

• Named insured and mailing address
• Insurer name and policy number
• Description of the property or risk insured
• Policy period (effective and expiration dates)
• Coverage limits and deductibles
• Premium
• List of attached endorsements

Exam tip: When a question asks where to find limits, deductibles, or the premium, the answer is the Declarations page .

2. Definitions

Policies are "definition-intensive." Key words — printed in bold or quotation marks — carry precise legal meanings. " Occurrence " may mean one event or a series of related events; " bodily injury " may or may not include emotional distress. A coverage question can hinge entirely on a defined term.

3. Insuring Agreement

The heart of the policy — the insurer's core promise ("We will pay for..."). Two coverage triggers exist, and the difference controls who must prove what .

• Type What's covered Burden of proof
• Named perils Only perils specifically listed Insured must prove the loss came from a listed peril

Open perils (all-risk / special form) All direct physical loss except stated exclusions Insurer must prove an exclusion applies

Named-perils example: the form lists fire, lightning, and windstorm; a flood damages the home → not covered (flood is not listed).

Open-perils example: the form excludes flood, earthquake, and war; a meteor strikes → covered (a meteor is not excluded). Open perils is broader and shifts the proof burden onto the insurer — a frequent test point.

4. Exclusions

Provisions that remove coverage . Insurers exclude losses that are uninsurable, catastrophic, better covered elsewhere, or within the insured's control.

• Common Exclusion Reason Where to get coverage
• Flood Catastrophic, correlated NFIP or private flood policy
• Earthquake Catastrophic Separate policy or endorsement
• War / nuclear hazard Uninsurable catastrophe Generally none
• Intentional loss Moral hazard / fraud None — never insurable
• Wear and tear Not fortuitous; maintenance None
• Ordinance or law Code-upgrade cost Ordinance-or-law endorsement

Exclusions can appear outside the "Exclusions" heading and inside endorsements, so read the whole contract.

5. Conditions

The rules and duties both parties must follow.

• Condition What it requires
• Duties after loss Give prompt notice; protect property from further damage
• Proof of loss Submit a sworn written statement (commonly within 60 days of request)
• Examination under oath Cooperate with the investigation
• Appraisal Resolve value disputes via independent appraisers and an umpire
• Cancellation / nonrenewal How each side may end or decline to renew the policy

Missing a condition (late notice, no proof of loss) can justify a denial.

6. Endorsements (Riders)

Written amendments that add, delete, or change coverage — adding earthquake or scheduled jewelry, raising a limit, fixing an error, or adding a vehicle. Crucially, an endorsement is part of the contract and overrides conflicting base-form language .

Exam alert: When determining whether something is covered, always check endorsements first — they can reverse what the base form says.

Order of Interpretation

When analyzing coverage, work in this sequence: (1) Endorsements → (2) Declarations → (3) Definitions → (4) Insuring Agreement → (5) Exclusions → (6) Conditions. Specific language (endorsements, dec page) always beats general boilerplate, and a defined term beats its plain-English meaning.

Deductibles, Limits, and How They Interact with Structure

The declarations also fix the financial machinery of the policy, and the exam expects you to apply it. A deductible is the retained amount the insured absorbs before coverage responds; a limit of insurance is the most the insurer will pay. They work together in a fixed order: subtract the deductible from the covered loss, then cap the result at the limit.

Worked example: A covered fire causes $60,000 of damage on a policy with a $50,000 limit and a $1,000 deductible. The insurer pays the loss less the deductible ($59,000) but no more than the limit, so it pays $50,000. Reverse the numbers — a $30,000 loss on the same policy — and the insurer pays $29,000 ($30,000 − $1,000), well under the limit. Knowing which cap binds first is a frequent calculation question.

Coinsurance — A Condition That Reshapes the Payout

Many property policies embed a coinsurance condition requiring the insured to carry coverage equal to a stated percentage (commonly 80%) of the property's value. Carry less and the insured becomes a co-insurer of every partial loss, paid by the formula:

Amount paid = (Insurance carried ÷ Insurance required) × Loss − Deductible

Example: A building worth $500,000 has an 80% coinsurance clause, so $400,000 is required. The owner insures it for only $300,000 and suffers a $100,000 loss. Recovery = (300,000 ÷ 400,000) × 100,000 = $75,000, before any deductible. The $25,000 shortfall is the penalty for underinsuring. This single condition reverses a surprising number of "how much will the insurer pay" questions, so practice it until it is automatic.

Why Structure Knowledge Pays Off

Every later chapter — homeowners, dwelling, auto, commercial, and liability forms — reuses this same six-part skeleton and these same conditions. Once you can map any policy provision to Declarations, Definitions, Insuring Agreement, Exclusions, Conditions, or Endorsements, and apply deductibles, limits, and coinsurance in the right order, the rest of the exam becomes pattern recognition rather than memorization.