Property Insurance Basics and Policies — Property & Casualty Insurance License practice questions

Coverage A (Dwelling) in a standard homeowners policy insures:

1. Personal property of the insured located anywhere in the world
2. Additional living expenses while the residence is uninhabitable
3. Third-party bodily injury the insured negligently causes to a visitor
4. The dwelling structure on the residence premises and attached structures

Answer: D — The dwelling structure on the residence premises and attached structures

A) Look-alike — that is Coverage C, not Coverage A. B) Look-alike — that is Coverage D loss of use, not Coverage A. C) Look-alike — that is Coverage E personal liability, not Coverage A. D) Correct — Coverage A insures the dwelling and attached structures.

Commercial property causes-of-loss forms are typically issued as:

1. Basic (limited perils), Broad (adds more perils), and Special (open perils)
2. Named, Endorsed, and All-Risk as informal categories in the ISO manual
3. BOP, CGL, and Umbrella as the three ISO commercial coverage packages
4. A single Combined Perils form used for all commercial property risks

Answer: A — Basic (limited perils), Broad (adds more perils), and Special (open perils)

A) Correct — three-tier standard causes-of-loss forms. B) Look-alike — those are outdated informal terms, not the ISO forms. C) Direction reversal — BOP/CGL/Umbrella are different products entirely. D) Direction reversal — three distinct causes-of-loss forms exist.

Coverage F (Medical Payments to Others) under a homeowners policy pays:

1. Reasonable medical expenses of injured third parties, regardless of fault
2. Reasonable medical expenses of the named insured and family members
3. Reasonable medical expenses only if the insured is found legally liable
4. Reasonable medical expenses of employees injured on the residence premises

Answer: A — Reasonable medical expenses of injured third parties, regardless of fault

A) Correct — Coverage F is no-fault, third-party goodwill coverage. B) Direction reversal — the insured is expressly excluded from Coverage F. C) Direction reversal — Coverage F is no-fault; liability is not required. D) Look-alike — that is workers' compensation, not Coverage F.

The HO-3 Special Form homeowners policy provides coverage on:

1. Open perils on dwelling and other structures; named perils on personal property
2. Named perils on dwelling and other structures; open perils on personal property
3. Open perils on the dwelling only; no coverage for personal property at all
4. Named perils on everything, matching the older HO-1 basic form structure

Answer: A — Open perils on dwelling and other structures; named perils on personal property

A) Correct — HO-3 open on Section I structures, named on personal property. B) Direction reversal — reverses the two coverage bases. C) Direction reversal — HO-3 covers personal property under Coverage C. D) Look-alike — HO-2 is the broad named-perils form, not HO-3.

The typical NFIP waiting period for new flood coverage after policy purchase is:

1. 10 days from application, matching most personal-lines waiting-period defaults
2. 30 days from application, subject to limited statutory exceptions in some cases
3. 60 days from application, matching the earthquake endorsement standard delay
4. 90 days from application, matching the surplus-lines binding waiting period

Answer: B — 30 days from application, subject to limited statutory exceptions in some cases

A) Off-by-one — 10 days is too short; NFIP standard is 30 days. B) Correct — standard 30-day wait, with lender/remap exceptions. C) Off-by-one — 60 days is not the NFIP waiting period. D) Off-by-one — 90 days is not the NFIP standard.

Coverage B (Other Structures) in a standard homeowners policy typically equals:

1. 100% of Coverage A, matching the dwelling limit under Section I of the policy
2. 50% of Coverage A, aligning with the Coverage C personal property default limit
3. 10% of Coverage A as the standard ISO default for detached structures
4. A flat $25,000 regardless of the Coverage A limit purchased under the policy

Answer: C — 10% of Coverage A as the standard ISO default for detached structures

A) Off-by-one — 100% would double the dwelling limit. B) Off-by-one — 50% is the Coverage C default, not Coverage B. C) Correct — 10% of Coverage A is the ISO baseline for Coverage B. D) True-but-irrelevant — a flat cap is not the ISO baseline default.

The DP-1 basic dwelling form typically:

1. Covers the dwelling on an open-perils (all-risk) basis with broad exclusions
2. Includes personal liability coverage automatically without any endorsement
3. Is functionally identical to a standard HO-3 special form homeowners policy
4. Covers a limited perils list on the dwelling and typically settles losses on ACV

Answer: D — Covers a limited perils list on the dwelling and typically settles losses on ACV

A) Direction reversal — DP-1 is a limited-perils form, not open perils. B) Direction reversal — DP liability is added by endorsement, not automatic. C) Look-alike — HO-3 is a homeowners form, not a dwelling policy. D) Correct — DP-1 is the most restrictive dwelling policy form.

A Businessowners Policy (BOP) typically bundles:

1. Commercial auto and workers' compensation into a single package policy
2. Property coverage, business income, and general liability with class limits
3. Life insurance for the owners and other key employees of the business entity
4. Professional liability and cyber into a single small-business package policy

Answer: B — Property coverage, business income, and general liability with class limits

A) Direction reversal — CA and WC are separate policies, not in BOP. B) Correct — packaged property, business income, and CGL for eligible risks. C) Look-alike — that is key-person life, not the BOP structure. D) Look-alike — specialty lines are typically stand-alone, not BOP.

The HO-8 form is typically used for:

1. Newly built luxury custom homes with high replacement values above the norm
2. Condominium unit owners with walls-in and improvements coverage on the unit
3. Older homes where replacement cost exceeds market value with ACV settlement
4. Vacant dwellings not occupied by the owner at the time coverage is written

Answer: C — Older homes where replacement cost exceeds market value with ACV settlement

A) Direction reversal — HO-3 or HO-5 fits new-construction luxury. B) Look-alike — HO-6 is the condo form, not HO-8. C) Correct — HO-8 is the modified form for older/historic homes. D) Look-alike — DP forms fit vacant dwellings, not HO-8.

Coverage F (Medical Payments to Others) under a homeowners policy responds to:

1. Medical bills the insured incurs after a home injury caused by a covered peril
2. Medical bills for regular household members of the named insured on premises
3. Medical bills incurred only by the insured's regular domestic employees at work
4. Reasonable medical bills of an injured third party, regardless of legal fault

Answer: D — Reasonable medical bills of an injured third party, regardless of legal fault

A) Direction reversal — Coverage F is for third parties, not the insured. B) Direction reversal — household members are excluded from Coverage F. C) Look-alike — employee medical belongs to workers' compensation. D) Correct — no-fault third-party medical is the Coverage F role.

HO-6 (Condo)?

For condo unit-owners. Covers personal property (named perils), improvements/betterments to the unit (Coverage A — often limited), liability, and loss of use. Common areas typically covered by master condo policy.

NFIP building limit — residential vs. commercial?

Residential building: $250,000. Residential contents: $100,000. Commercial building: $500,000. Commercial contents: $500,000. Amounts above the caps require Excess Flood.

HO-4 (Renters/Tenants)?

For tenants. Covers personal property (named perils) and liability — no dwelling coverage. Loss of use included.

BOP business income coverage?

Pays net income + continuing normal operating expenses during the period of restoration after a covered cause of loss. Often includes a 12- to 24-month restoration period.