Property → Chapter 3 → Part 1

Part 1: Personal Lines

Dwelling (DP-1, DP-2, DP-3), Homeowners (HO-2 through HO-8), and Mobile Homes

1. What is a Dwelling Property Policy?

The Dwelling Property Policy was developed by ISO as a property coverage form. It can insure the dwelling only, contents only, or both. This is commonly used to insure rental dwellings.

ISO Classification

ISO classifies dwelling property policies as DP with a corresponding form number:

DP-1

Basic Form

DP-2

Broad Form

DP-3

Special Form

Primary Use

Commonly used to insure rental properties - dwellings owned by landlords and rented to tenants.

Liability Coverage

Liability is NOT included in the basic policy, but can be added by endorsement.

Real-World Scenario: When to Use a Dwelling Policy

The Setup: Maria owns a two-family home that she rents out to tenants. She lives elsewhere in her own home (covered by a Homeowners policy).

What She Needs: Maria needs coverage for the rental property's building and potentially some landlord-owned contents (appliances, etc.).

The Solution: A Dwelling Policy (DP-3) is perfect - it covers the building without requiring Maria to live there. She can add liability coverage by endorsement.

STOP! Who Uses What Policy?

This is THE most important thing to understand before reading further. Get this wrong and nothing else makes sense.

DP Dwelling Policy (DP-1, DP-2, DP-3)

For: LANDLORDS who DON'T live in the property

Who buys it: Property owners who rent out to tenants AND live somewhere else

What it covers: The BUILDING and landlord-owned items (appliances, furnace)

What it does NOT cover: Tenant's belongings OR the landlord's personal belongings

Example: Tom owns a duplex and rents both units to tenants. Tom lives in his own house across town. Tom buys a DP-3 for the duplex (and an HO-3 for his own home).

HO Homeowners Policy (HO-2, HO-3, etc.)

For: OWNER-OCCUPANTS who LIVE in the home

Who buys it: Homeowners living in their own home (even if they also rent units)

What it covers: Building + YOUR Contents + Liability (package policy)

Renters: Tenants buy HO-4 (Renters Insurance) for their belongings

Example: Lisa buys a 4-unit building and lives in Unit 1, renting out Units 2-4. Lisa buys an HO-3 (NOT DP-3!) because she LIVES there. Her personal belongings are covered.

What if I Live in the Building AND Rent Units?

If you LIVE in a building you own (even if you rent out other units), you typically get an HO policy, not a DP policy. Why? Because HO covers:

  • - YOUR personal belongings (laptop, clothes, furniture)
  • - Personal liability coverage
  • - Additional living expense if you must leave

DP policies are designed for pure investment properties where the owner lives elsewhere.

Common Confusion in This Chapter:

When you see "Coverage C - Personal Property" in the DP section, remember: this is the LANDLORD's personal property kept AT THE RENTAL (like a refrigerator or lawnmower they provide), NOT the tenant's belongings AND not the landlord's belongings at their own home.

Quick Reference - Who Needs What:

Landlord (Building)

DP-1, DP-2, or DP-3

Homeowner

HO-3 (most common)

Renter/Tenant

HO-4 (Renters)

Condo Owner

HO-6 (Condo)

2. Eligibility Requirements

A Dwelling Property policy can be purchased to insure properties solely used for residential purposes in the following situations:

Up to 5 Roomers/Boarders

Property can have up to 5 people renting rooms

Up to 4 Residential Units

Covers duplexes, triplexes, four-plexes

Under Construction

Properties in the course of construction

Owner or Tenant Occupied

Or both - flexible occupancy options

Mobile Homes (DP-1 Only)

No more than 1 apartment, at permanent location

Seasonal Dwellings

Unoccupied 3+ months during 12-month period

NOT Eligible

Properties designed as farm property are NOT eligible for Dwelling policies.

Business Occupancy Rules

What this means: A Dwelling policy is for HOMES, not businesses. But what if you run a small side business from your home? The insurance company will still cover you IF your business is small enough that the home is still primarily a residence.

Your home-based business qualifies for a Dwelling policy if it meets ALL THREE rules:

  • 1
    Business is "incidental"

    The home is PRIMARILY a residence. The business is a side thing, not the main purpose.

  • 2
    Run by YOU on YOUR property

    The insured person must conduct the business themselves, at the dwelling location.

  • 3
    Maximum 2 workers at any time

    Including yourself! Once you have 3+ people working, it's too commercial for a Dwelling policy.

QUALIFIES for Dwelling Policy

Piano Teacher Maria

Lives in her home full-time. Teaches piano lessons 10 hours/week in her living room. Just her, no employees.

Why it works: Home is primary residence, business is "on the side," only 1 person working.

Accountant Tom's Home Office

Works from home office doing taxes for clients. He and his wife (who helps with filing) work together.

Why it works: 2 people max, they live there, professional office type work.

Lisa's Basement Hair Salon

Does hair cuts and styling in her basement. She's the only stylist, clients come to her home.

Why it works: Beauty shop is on the "permissible" list, 1 worker, it's her residence.

DOES NOT QUALIFY - Needs Commercial Policy

Mike's Growing Barber Shop

Mike, plus 2 other barbers he hired, cut hair in his converted garage. 3 barber chairs, busy all day.

Why it fails: 3 workers (Mike + 2 employees) exceeds the 2-person maximum.

Sarah's Retail Boutique

Converted her first floor into a clothing store. She lives upstairs but the main floor is 100% retail.

Why it fails: Selling merchandise IS the primary function. Not "incidental" anymore.

The Investment Property

Dave owns a house where he lets a massage therapist rent space and run her business. Dave doesn't live there.

Why it fails: Business not conducted BY the insured - it's someone else's business.

Types of Businesses That CAN Qualify (if rules are met):

Barber shops Beauty salons Tailors Shoe repair Professional offices Private tutoring Music lessons Photography

Key restriction: Selling merchandise (retail) must NOT be the primary function. You can sell a few items related to your service (like a hair salon selling shampoo), but you can't run a store.

Exam Trap!

Questions may try to trick you with "3 employees" or "selling products as the main business." Remember: max 2 workers and no primary retail sales.

3. General Form Structure

Every ISO form follows a consistent structure. The DP form structure is:

Agreement

Definitions

Deductible

Coverages

Perils

Exclusions

Conditions

Agreement

Insuring agreement - states the insurer will provide coverage in return for premium and compliance.

Definitions

Limited in nature - key terms defined.

Deductible

Applies to all covered losses unless noted otherwise.

Coverages

Direct and indirect property coverages, plus additional coverages.

Perils Insured Against

Vary by form - KEY differentiator in form selection!

Conditions

Specify when coverage will apply.

4. The Three Coverage Forms

Form Name Peril Type Coverage Level
DP-1 Basic Named Peril Most Limited
DP-2 Broad Named Peril Expanded
DP-3 Special Open Peril (dwelling) / Named (contents) Broadest

DP-1: Basic Form (DP 00 01)

The most limited coverage of the three forms. Named peril only. No minimum insurance requirement.

Base Perils (Included):

Fire

Lightning

Internal Explosion

Fire Example - COVERED:

Setup: Tom leaves a candle burning. It tips over and sets the curtains on fire, spreading to the kitchen.

Result: COVERED - fire escaped its intended place (the candle). Policy pays for kitchen repairs.

Lightning Example - COVERED:

Setup: Lightning strikes Maria's rental house, frying the electrical panel and starting a small fire in the attic.

Result: COVERED - lightning is a base peril. Policy pays for electrical repairs and fire damage.

Internal Explosion Example - COVERED:

Setup: A gas leak in the basement causes an explosion that blows out windows and cracks the foundation.

Result: COVERED - explosion originated INSIDE the building. Policy pays for all damage.

Fire Coverage - Hostile vs Friendly Fire

This distinction trips people up on the exam! A "friendly fire" is one that stays where it belongs.

COVERED: Hostile Fire

Fire that escapes its intended boundaries.

Example: Sparks from the fireplace land on the carpet and start burning. The fire "escaped" - COVERED.

Example: Grease fire on stove spreads to cabinets. Fire escaped the pan - COVERED.

NOT COVERED: Friendly Fire

Fire stays in its intended place but causes damage.

Example: You accidentally throw your watch into the fireplace. It melts. Fire stayed in fireplace - NOT COVERED.

Example: Smoke from fireplace discolors the mantle above it. Fire stayed contained - NOT COVERED.

Extended Coverage Perils (Optional - Additional Premium):

What is ECP (Extended Coverage Perils)?

ECP is an optional endorsement you can add to a DP-1 Basic policy to expand coverage beyond just Fire, Lightning, and Internal Explosion.

DP-1 Basic Alone

Fire, Lightning, Internal Explosion ONLY

DP-1 + ECP

Adds WHARVES perils (7 more!)

DP-1 + ECP + VMM

Full DP-1 (must have ECP first!)

Remember: You CANNOT add VMM without first adding ECP!

Memory Trick: WHARVES (The ECP Perils)

W

Windstorm

H

Hail

A

Aircraft/Vehicles

R

Riot/Civil Commotion

V

Volcanic Eruption

E

Explosion

S

Smoke

Windstorm or Hail

Interior damage covered ONLY if exterior damaged first. No coverage for awnings, signs, antennas, rowboats/canoes, trees/shrubs/plants.

COVERED:

Storm blows shingles off roof, rain enters and ruins the ceiling. Exterior broke first, so interior damage is covered.

NOT COVERED:

Rain blows through an open window during storm. No exterior damage occurred - interior water damage NOT covered.

Aircraft or Vehicles

Damage from aircraft or vehicles hitting property. NOT covered if vehicle owned/operated by insured or resident.

COVERED:

Drunk driver loses control and crashes into your detached garage. Not your vehicle - COVERED.

NOT COVERED:

Your teenage son backs into the garage door with the family car. YOUR vehicle caused damage - NOT covered by dwelling policy (auto claim).

Riot or Civil Commotion

Damage from riots, protests, or civil unrest.

COVERED Example:

During a protest downtown, rioters smash windows and set fire to your rental property's first floor. Riot damage - COVERED.

Volcanic Eruption

Direct damage from volcanic activity - lava, ash, airborne shock waves.

COVERED Example:

Volcanic ash falls on your rental property, collapsing the carport and covering the roof. Volcanic eruption - COVERED.

Explosion (External)

Explosions from OUTSIDE the building (internal explosion is base coverage).

COVERED Example:

A gas main explodes down the street, shattering windows and cracking walls of your rental property. External explosion - COVERED.

Smoke

Must be sudden and accidental. NO coverage for agricultural smudging, industrial operations, or fireplace smoke.

COVERED:

Neighbor's house catches fire. Smoke drifts over and permeates your rental's walls, requiring cleaning. Sudden smoke damage - COVERED.

NOT COVERED:

A factory next door emits smoke daily for months, slowly discoloring your rental's exterior. Industrial/gradual smoke - NOT covered.

Vandalism & Malicious Mischief (VMM)

Can ONLY be added if Extended Coverage perils are purchased first.

  • - Glass breakage NOT covered (except glass building blocks)
  • - Theft damage to building IS covered, but stolen property is NOT
  • - NO coverage if vacant for more than 60 consecutive days

COVERED:

Setup: Vandals spray paint graffiti on the exterior walls and kick holes in the drywall.

Result: VMM covers the repairs - painting and drywall replacement.

COVERED (Theft Damage):

Setup: Thieves break down the door and rip copper pipes out of the walls.

Result: VMM covers the door and wall damage (NOT the stolen copper).

NOT COVERED (Glass):

Setup: Vandals throw a rock through the front window.

Result: In DP-1, glass breakage is NOT covered by VMM (DP-2/3 do cover this).

NOT COVERED (Vacancy):

Setup: Property has been vacant for 90 days while you find a new tenant. Vandals trash the interior.

Result: NO coverage - property vacant 60+ days voids VMM coverage.

DP-1 Coverage Structure:

Base Form

Fire, Lightning, Internal Explosion

+

Option 1

Extended Coverage (WHARVES)

+

Option 2

VMM (requires Option 1)

DP-2: Broad Form (DP 00 02)

Expands coverage from Basic + Extended + VMM, plus 7 additional broad form perils.

DP-2 = DP-1 + Extended + VMM + Broad Form Perils

Also includes expanded glass breakage coverage for vandalism (not just glass blocks).

Memory Trick: B.B. BICE-GOLF

B

Bursting heating

B

Burglary damage

B

Breaking water heaters

I

Ice/snow/sleet weight

C

Collapse

E

Electrical damage

G

Glass breakage

O

Objects falling

L

Leakage water/steam

F

Freezing plumbing

7 Additional Broad Form Perils (with Examples):

1. Damage by Burglars

Covers damage caused during burglary. NO theft coverage - only the DAMAGE. NO coverage if vacant 60+ days.

COVERED:

Burglars kick in the door, smash windows, and tear apart walls looking for valuables. Policy pays for door, windows, and drywall repair.

NOT COVERED:

The TV and jewelry they stole. DP policies don't cover theft - only the damage to the building.

2. Falling Objects

Interior damage covered only if exterior damaged first. NO coverage for awnings, fences, outdoor equipment, antennas.

COVERED:

A tree limb crashes through the roof, damaging the roof and the bedroom below. Exterior broke first - interior damage COVERED.

NOT COVERED:

Same tree limb destroys the backyard fence. Fences are excluded from falling objects coverage.

3. Weight of Ice, Snow, or Sleet

Covers collapse or damage from heavy snow/ice. NO coverage for fences, pools, patios, foundations, awnings.

COVERED:

Heavy snowfall causes the carport roof to collapse. Weight of snow on a structure - COVERED.

NOT COVERED:

Ice weight causes the patio awning to collapse. Awnings are excluded.

4. Accidental Discharge/Overflow of Water or Steam

From plumbing, heating, A/C, sprinklers, household appliances. Includes tear-out costs. NO continuous seepage. NO coverage if vacant 60+ days.

COVERED - Washing Machine:

Setup: You add a laundry room to your rental property. The washing machine's supply hose bursts suddenly while running, flooding the laundry room and soaking the subfloor.

Result: COVERED! Water "discharged" from an appliance/plumbing system. Policy pays for floor damage AND any walls damaged by the water.

COVERED - Pipe Inside Wall:

Setup: You notice water stains on the ceiling and wet floors. A plumber determines a hot water pipe INSIDE the wall burst suddenly (copper fatigue, freeze, or fitting failure).

Result: Policy pays: (1) tear out drywall to access pipe, (2) repair/replace pipe, (3) put drywall back, (4) water damage to floors/ceilings.

NOT COVERED - Gradual Seepage:

Pipe has been slowly dripping for months, causing mold in the wall. This is "continuous or repeated seepage" - NOT a sudden discharge. Claim denied.

5. Sudden Tearing Apart, Cracking, Burning, Bulging

Of heating systems, A/C, sprinklers, water heating appliances. Must be sudden - not gradual wear.

COVERED:

Water heater suddenly bursts, flooding the basement and damaging the furnace next to it. Sudden failure - COVERED.

NOT COVERED:

A/C unit slowly corrodes over years until it stops working. Gradual deterioration - NOT covered.

6. Freezing of Plumbing DP-2 & DP-3 ONLY!

DP-1 does NOT cover freezing - even with ECP and VMM endorsements! You need DP-2 or DP-3 for freezing coverage.

Pipes, heating, A/C, sprinklers. ONLY covered if insured maintains heat OR shuts off water and drains pipes.

COVERED:

Landlord keeps heat at 55 degrees during winter. Extreme cold still freezes a pipe in the exterior wall, causing water damage. Heat was maintained - COVERED.

NOT COVERED:

Landlord turns off heat to save money while property is vacant. Pipes freeze and burst. No effort to protect - NOT covered.

7. Artificially Generated Electrical Current

Power surges, electrical damage. Sudden and accidental only. NO coverage for tubes, transistors, electronic components.

COVERED:

Power surge from a nearby lightning strike fries the electrical panel and the HVAC system. Sudden electrical damage - COVERED.

NOT COVERED:

The same surge destroys a laptop computer left in the rental. Electronic components are excluded.

Additional Other Coverages in DP-2:

Lawns, Trees, Shrubs, Plants

$500 max per item, 5% of Coverage A max per loss

Glass Breakage

Including storm doors/windows. NO coverage if vacant 60+ days.

Collapse

If caused by hidden decay, insects/vermin, weight, defective materials during construction.

DP-3: Special Form (DP 00 03)

The broadest coverage. Unlike Basic and Broad, this is an OPEN PERIL form for the dwelling and other structures.

Key Distinction - Open vs Named Peril:

Dwelling & Other Structures

OPEN PERIL

All perils covered EXCEPT those specifically excluded.

Personal Property (Contents)

NAMED PERIL

Covered for Broad Form perils (DP-2 perils).

Key Differences from DP-2:

1

Theft of Building Parts

Theft of property that is PART of the dwelling or other structure IS covered.

2

Off-Premises Water Damage

Accidental discharge/overflow from water/steam pipes that occurs OFF premises is covered.

3

No Exclusions for Outdoor Items

Antennas, outdoor equipment, fences, awnings ARE covered for falling objects.

4

Ice Dam Coverage

Covers damage to roof caused by freezing/thawing of water under roof shingles (ice dams).

Real-World Scenario: Why DP-3 Matters

The Setup: Tom owns a rental property in New Jersey. During winter, ice builds up under the roof shingles (an ice dam), causing water to leak into the attic.

With DP-2: NOT covered - freezing under shingles isn't a named peril.

With DP-3: COVERED - as an open peril form, ice dam damage isn't specifically excluded, so it's covered!

DP Forms Summary

Feature DP-1 DP-2 DP-3
Dwelling Peril Type Named Named Open
Contents Peril Type Named Named Named (Broad)
Coverage E (ALE) By Endorsement Optional Optional
Theft of Building Parts No No Yes
Ice Dam Coverage No No Yes

4B. What ALL Dwelling Policies Do NOT Include

Critical Exam Point: Dwelling Policies (DP-1, DP-2, DP-3) are PROPERTY-ONLY policies. They are NOT package policies like Homeowners!

X NEVER Included in ANY DP Form

  • X

    Liability Coverage

    No personal liability protection

  • X

    Medical Payments to Others

    No coverage for guest injuries

  • X

    Theft of Personal Property

    Stolen items NOT covered (damage from theft IS covered)

  • X

    Credit Card / Forgery Coverage

    No protection for fraudulent use

  • X

    Loss Assessment Coverage

    No HOA assessment protection

+ CAN Add By Endorsement

  • +

    Personal Liability Supplement

    Endorsement DP 04 22 - adds liability + med pay

  • +

    Theft Coverage

    Broad Theft or Limited Theft endorsement

  • +

    Additional Living Expense (Coverage E)

    DP-1: endorsement required. DP-2/3: optional, NOT automatic

  • +

    Replacement Cost Endorsement (DP-1 only)

    DP-1 is ACV only - rare endorsement to upgrade. Most just buy DP-2/3 instead.

Dwelling Policy vs Homeowners: Key Difference

Homeowners (HO) = Package Policy

"All-inclusive bundle"

  • All coverages (A-F) included automatically
  • Section I: Property Coverage
  • Section II: Liability Coverage
  • Theft included
  • Credit card coverage included
  • Fixed percentages (B=10%, C=50%, etc.)

Dwelling (DP) = A La Carte

"Pick what you need, skip what you don't"

  • Coverage A (Dwelling) - REQUIRED
  • Coverage B (Other Structures) - Optional
  • Coverage C (Personal Property) - Optional
  • Coverage D (Fair Rental Value) - Optional
  • Coverage E (ALE) - Optional/Endorsement
  • Liability/Theft = Must add by endorsement

Why A La Carte Makes Sense for Landlords

Skip Coverage C?

Landlord has no belongings at rental. Tenant's stuff is tenant's problem (HO-4).

Skip Coverage E?

Landlord doesn't live there. No "additional living expense" needed.

Skip Coverage B?

No detached structures on property? Don't pay for coverage you don't need.

Real-World Scenario: Why This Matters

The Setup: John owns a rental property with a DP-3 policy. A tenant's guest slips on icy steps and breaks their arm. They sue John for $50,000.

The Problem: John's DP-3 has NO liability coverage - it's property only!

The Result: John pays the $50,000 out of pocket. If he had added the Personal Liability Supplement (DP 04 22), he would have been covered.

Lesson: ALWAYS recommend liability endorsement for rental property owners!

4C. Valuation Methods: ACV vs Replacement Cost

Critical Exam Point: How claims are paid differs DRAMATICALLY between DP forms!

DP-1 pays ACV (less money). DP-2 and DP-3 can pay Replacement Cost (full repair/replace value).

ACV (Actual Cash Value)

ACV = Replacement Cost - Depreciation

You get paid what the item is WORTH today, not what it costs to replace.

Example:

10-year-old roof destroyed by fire

New roof cost: $15,000

Depreciation (10 years): -$7,500

ACV Payment: $7,500

You're $7,500 short for a new roof!

RC (Replacement Cost)

RC = Full Cost to Replace (No Depreciation)

You get paid the FULL cost to repair or replace with new materials.

Example:

Same 10-year-old roof destroyed by fire

New roof cost: $15,000

Depreciation: $0 (ignored)

RC Payment: $15,000

Full replacement covered!

Valuation Method by DP Form

Coverage DP-1 (Basic) DP-2 (Broad) DP-3 (Special)
Coverage A (Dwelling) ACV ONLY RC* RC*
Coverage B (Other Structures) ACV ONLY RC* RC*
Coverage C (Personal Property) ACV ACV ACV
Minimum Requirement None 80% Coinsurance 80% Coinsurance

*RC requires meeting 80% coinsurance requirement. If not met, claim paid at ACV.

The 80% Coinsurance Rule (DP-2 & DP-3)

To get Replacement Cost coverage on DP-2 or DP-3, you MUST insure the dwelling for at least 80% of its replacement cost.

Meet 80% = Full RC Payment

Home RC value: $300,000

80% requirement: $240,000

Coverage A purchased: $250,000

Result: Full RC on claims!

Below 80% = Reduced Payment

Home RC value: $300,000

80% requirement: $240,000

Coverage A purchased: $200,000

Result: Claims reduced proportionally or paid at ACV!

Same Fire, Three Different Payouts

Watch how the SAME claim pays differently under each DP form:

The Scenario:

Fire destroys the kitchen in a 20-year-old rental home. The home's replacement cost is $250,000. The owner has $200,000 in Coverage A.

  • Kitchen replacement cost: $40,000
  • Kitchen ACV (with depreciation): $25,000

DP-1 Payment

$25,000

ACV only - depreciation deducted

Owner is $15,000 short!

DP-2 Payment

$33,333

RC reduced - only has 80% of required coverage (200K/250K = 80%)

Formula: (Amount Carried / Amount Required) x Loss

DP-3 Payment (if 80% met)

$40,000

Full RC - if owner had $200K+ on a $250K home

Full replacement covered!

4D. How Each Coverage Works by Form

Key Insight: While all DP forms have Coverages A-D (and DP-2/3 have E), the PERILS covered and HOW claims are paid differ significantly!

Feature DP-1 (Basic) DP-2 (Broad) DP-3 (Special)
COVERAGE A - DWELLING
Peril Type Named (3 base perils) Named (Broad perils) OPEN PERILS
Valuation ACV ONLY RC (80% rule) RC (80% rule)
Minimum Insurance None required 80% of RC 80% of RC
COVERAGE B - OTHER STRUCTURES
Peril Type Same as Cov A Same as Cov A OPEN PERILS
Valuation ACV ONLY RC RC
COVERAGE C - PERSONAL PROPERTY
Included Automatically? OPTIONAL OPTIONAL OPTIONAL
Peril Type Named (3 base) Named (Broad) Named (Broad) - NOT Open!
Valuation ACV ACV ACV
Theft Covered? NO NO NO
COVERAGE D - FAIR RENTAL VALUE
Automatically Included? OPTIONAL OPTIONAL OPTIONAL
Purpose Lost rental income when property is uninhabitable due to covered loss
COVERAGE E - ADDITIONAL LIVING EXPENSE
Available? Endorsement Only OPTIONAL OPTIONAL
Automatically Included? NO NO NO
Purpose Extra living costs when OWNER-OCCUPIED dwelling is uninhabitable

Exam Trap Alerts: Coverage by Form

1. DP-1 is ALWAYS ACV!

DP-1 Basic pays Actual Cash Value for dwelling AND contents. That's just how DP-1 works - if you want RC, buy DP-2 or DP-3 instead.

2. DP-3 Contents are NOT Open Peril!

DP-3 is "Special Form" but ONLY Coverage A and B are open peril. Coverage C (personal property) is still NAMED peril (Broad form perils).

3. NO Theft in ANY DP Form!

Theft of personal property is NEVER covered in DP-1, DP-2, or DP-3 base policies. Only theft DAMAGE to the building is covered (DP-2/3). Must add theft endorsement.

4. Coverage D vs E Confusion

Coverage D (Fair Rental Value) = Lost RENT for landlords. Coverage E (ALE) = Extra living costs for OWNER-OCCUPANTS. Coverage E is NEVER automatically included in ANY DP form - it's optional in DP-2/3 and requires endorsement for DP-1.

5. 80% Coinsurance Applies to DP-2 & DP-3 Only

DP-1 has NO minimum insurance requirement because it's ACV only. DP-2 and DP-3 require 80% coinsurance to get full Replacement Cost.

6. Coverage C is OPTIONAL in ALL DP Forms!

Unlike Homeowners policies, Coverage C (Personal Property) is NOT automatically included in DP-1, DP-2, or DP-3. It must be selected and paid for separately. Most landlords skip it since tenants have their own belongings.

7. Contents are ALWAYS Named Peril (Even in DP-3 & HO-3)

Only HO-5 covers contents on Open Peril basis. In DP-3 and HO-3 (the "Special" forms), ONLY the dwelling is Open Peril - contents remain Named Peril.

5. Property Coverages (A through E)

The dwelling policy has 4 core property coverages (A-D) in all forms. The Broad and Special forms add a 5th coverage (E).

Standard Deductible: $250

Applies to all property coverages except Coverage D (Fair Rental Value) and Coverage E (Additional Living Expense).

A

Dwelling

Direct

B

Other Structures

Direct

C

Personal Property

Direct

D

Fair Rental Value

Indirect

E

Add'l Living Expense

Indirect (DP-2/3 only)

Coverage A - Dwelling

Covers the dwelling used principally for dwelling or residential purposes.

PROPERTY COVERED:

  • - Dwelling on described premises + attached structures
  • - Materials/supplies for construction on/near premises
  • - Building equipment and outdoor equipment to service location

PROPERTY NOT COVERED:

  • - Land (including land where dwelling sits)

Real-World Examples:

COVERED - Fire damages the house:

Setup: A fire destroys the kitchen, damages the roof, and melts the attached garage door.

Result: Coverage A pays for all repairs - the kitchen, roof, AND attached garage (it's attached to dwelling).

COVERED - Construction materials damaged:

Setup: Landlord is adding a new bathroom. Lumber and fixtures stored in driveway are damaged by vandals.

Result: Coverage A covers construction materials on premises, even before installation.

NOT COVERED - Sinkhole under property:

Setup: A sinkhole opens up and the land beneath the house drops 3 feet, causing foundation damage.

Result: LAND is never covered. The building damage might be covered (depending on earth movement coverage), but any loss in land value - NOT covered.

Coverage B - Other Structures

Covers separate structures at the same location (detached garages, sheds, fences). Also called appurtenant structures.

PROPERTY COVERED:

  • - Structures separated by clear space or connected only by fence/utility line
  • - Structures rented to non-tenants ONLY as private garage
  • - Structures used for commercial storage (insured's property only)

PROPERTY NOT COVERED:

  • - Land
  • - Structures rented to non-tenants (except as private garage)
  • - Structures used for business
  • - Gravemarkers and mausoleums

Real-World Examples:

COVERED - Detached garage:

Setup: Landlord's rental property has a detached 2-car garage. A tree falls and crushes the garage roof.

Result: Coverage B pays for garage repairs. It's a separate structure not attached to the main dwelling.

COVERED - Storage shed:

Setup: Landlord keeps a tool shed on the property where they store lawn equipment. Vandals break in and damage it.

Result: Coverage B pays for shed repair (Coverage C would cover the tools inside).

NOT COVERED - Structure rented out:

Setup: Landlord converts the detached garage into a workshop and rents it to a woodworker.

Result: NOT covered! Once a structure is rented to a non-tenant (someone who doesn't live in the main dwelling), Coverage B doesn't apply. Exception: renting it as a private garage only.

Coverage C - Personal Property

CRITICAL: Whose Property is This?

In a DP (Dwelling Policy), Coverage C covers the LANDLORD's personal property - items the landlord owns and keeps at the rental. This is NOT the tenant's belongings!

Landlord's DP Policy Covers:

Refrigerator landlord provides, washer/dryer, lawn mower, tools for maintenance

Tenant's HO-4 Covers:

Tenant's furniture, TV, clothes, computer - tenant needs their own policy!

Covers personal property usual to a residence, located on the described premises.

PROPERTY COVERED:

  • - Personal property of insured and resident family
  • - Property of guests/servants (at insured's discretion)
  • - Model/hobby aircraft (not for people/cargo)
  • - Motor vehicles to service premises or assist disabled
  • - Rowboats and canoes
  • - Blank storage media & prepackaged software
  • - Property moved to newly acquired residence (30 days)

PROPERTY NOT COVERED:

  • - Money, securities, accounts, bank notes
  • - Animals, birds, fish
  • - Aircraft (except hobby)
  • - Hovercraft
  • - Watercraft (except rowboats/canoes)
  • - Motor vehicles (except as noted)
  • - Cost to restore electronic data
  • - Credit/debit cards
  • - Water or steam
  • - Gravemarkers and mausoleums

Real-World Examples:

COVERED - Landlord's appliances:

Setup: Landlord provides a refrigerator and washer/dryer for tenants. A fire destroys them.

Result: Coverage C (landlord's policy) pays to replace the appliances - they belong to the landlord.

COVERED - Maintenance equipment:

Setup: Landlord stores a lawn mower, snow blower, and tools in the garage for property upkeep. They're stolen.

Result: Coverage C pays - these are the landlord's personal property kept at the rental location.

NOT COVERED - Tenant's belongings:

Setup: A fire destroys the tenant's furniture, TV, and clothing worth $15,000.

Result: The LANDLORD's DP policy pays $0 for tenant belongings. The tenant needed their own HO-4 (Renters Insurance)!

NOT COVERED - Money:

Setup: Landlord kept $5,000 cash in a safe at the rental property. It's stolen during a burglary.

Result: NOT covered - money, securities, and bank notes are always excluded from Coverage C.

Coverage D - Fair Rental Value (Indirect Coverage)

Pays the fair rental value if property becomes uninhabitable due to a covered peril. This is for LANDLORDS who lose rental income.

Real-World Example:

John owns a two-family rental home. A fire damages the downstairs unit, making it uninhabitable. John loses $1,500/month in rent while repairs are made. Coverage D pays this lost rental income (minus discontinued expenses like utilities).

Key Points:

  • - Deducts discontinued expenses (heat, electric)
  • - Pays until repairs complete (shortest time)
  • - Pays proportionate share per month
  • - Policy expiration doesn't end existing claim

Civil Authority Extension:

If civil authority prohibits access due to damage at a neighboring property, coverage applies for up to 2 weeks.

NOT Covered: Loss/expense from cancellation of a lease.

Coverage E - Additional Living Expense (Indirect Coverage)

IMPORTANT: DP-2 and DP-3 ONLY!

Coverage E is NOT included in DP-1 Basic Form. It CAN be added by endorsement.

Pays for increased living expenses if the insured's home becomes uninhabitable. This is for OWNER-OCCUPANTS who must live elsewhere.

Real-World Example:

Maria lives in her own home. A fire forces her family to stay in a hotel for 3 months while repairs are made. The hotel costs $150/night, meals cost extra, and she has to drive farther to work. Coverage E pays these EXTRA expenses above her normal living costs.

Key Points:

  • - Maintains family's normal standard of living
  • - Pays until repairs complete (shortest time)
  • - Policy expiration doesn't end existing claim

Civil Authority Extension:

Up to 2 weeks if access prohibited due to neighboring property damage.

Coverage D vs Coverage E - Know the Difference!

Coverage D: Fair Rental Value

For: Landlords

Pays: Lost rental income

Coverage E: Additional Living Expense

For: Owner-Occupants

Pays: Extra living costs while displaced

6. Other Coverages

Wait - What ARE "Other Coverages"?

Think of them as bonus coverages included in your policy - like free toppings on a pizza. You don't pay extra for them, but they have limits.

Simple Example:

You buy Coverage A (Dwelling) for $200,000. The "Other Structures" coverage automatically gives you 10% of that ($20,000) to cover your detached garage - no extra premium needed.

STOP! Understand This First: "Additional Insurance" vs "NOT Additional"

This is the #1 confusing thing about Other Coverages. Here's what it means:

"IS Additional Insurance"

= FREE EXTRA money on top of your limits

Example: You have $200,000 Coverage A. Fire Dept charges you $500. This is ADDITIONAL - you still have your full $200,000 for the house damage.

"NOT Additional Insurance"

= EATS INTO your existing limits

Example: You have $200,000 Coverage A. You spend $5,000 on debris removal. Now you only have $195,000 left for repairs.

Exam Trap Alert!

DP-2 and DP-3 are more generous - many coverages that are "NOT additional" in DP-1 become "IS additional" in DP-2/3. This is a KEY difference between the forms!

The 8 Other Coverages (In ALL Forms: DP-1, DP-2, DP-3)

1

Other Structures

10% of Coverage A

What it does: Automatically adds coverage for detached structures (garage, shed, fence) without you having to buy separate Coverage B.

Real Example:

The Setup: Tom has DP-2 with $200,000 Coverage A. He didn't buy Coverage B. A tree falls on his detached garage.

What Happens: This "Other Coverage" automatically provides 10% of Coverage A = $20,000 for the garage repair.

The Result: Tom gets up to $20,000 for the garage - and since he has DP-2, this is ADDITIONAL insurance (doesn't reduce his $200,000 for the dwelling).

DP-2 & DP-3:

IS Additional Insurance (free extra $)

DP-1:

NOT Additional (reduces your Coverage A)

2

Debris Removal

No specific limit

What it does: Pays to haul away the mess after a covered loss - broken drywall, burned lumber, volcanic ash, etc.

Real Example:

The Setup: A fire destroys Sarah's kitchen. The repairs will cost $40,000.

What Happens: Before rebuilding, contractors need to remove burned cabinets, melted appliances, and debris. Hauling costs $3,000.

The Result: The policy pays for debris removal - but this is NOT additional insurance, so it comes out of Sarah's Coverage A limit. Total claim: $43,000 (if she has enough coverage).

All Forms: NOT Additional Insurance - reduces your dwelling limit. Includes volcanic ash/dust removal.

3

Improvements, Alterations, Additions

10% of Coverage C

What it does: If the insured is ALSO a tenant (owner-occupant), this covers improvements they made to the unit they live in. Up to 10% of Coverage C applies to loss or damage to improvements, alterations, or additions acquired by the insured.

Real Example:

The Setup: Mike owns a duplex and lives in one unit (owner-occupant). He has a DP policy with $30,000 Coverage C. He spent $5,000 installing built-in bookshelves and custom closet organizers in HIS unit.

What Happens: A pipe bursts and destroys his improvements.

The Result: This coverage gives him 10% of Coverage C = $3,000 for his improvements. (He's out $2,000, but better than nothing!)

DP-2 & DP-3:

IS Additional Insurance

DP-1:

NOT Additional (reduces Coverage C)

4

Worldwide Coverage

10% of Coverage C

What it does: Covers the insured's personal property (Coverage C items) when temporarily away from the insured property - anywhere in the world.

Wait - Does This Cover My Laptop on Vacation?

It depends on WHO you are and WHAT policy you have:

Landlord who DOESN'T live there:

Has DP policy. Coverage C = landlord's stuff at the rental (appliances, tools). Laptop on vacation? Probably NOT covered by the DP - it's not "property at the rental location."

Homeowner who LIVES there:

Has HO-3 policy. Coverage C = ALL your personal belongings. Laptop on vacation? YES - worldwide coverage applies (10% of C).

Landlord who DOES live on property (e.g., 3rd floor):

Should have HO-3 (owner-occupant policy), NOT DP. The HO-3 Coverage C covers their personal belongings including laptop on vacation.

Tenant/Renter:

Needs HO-4 (Renters Insurance). Coverage C = your belongings. Laptop on vacation? YES - if you have HO-4.

Example 1 - Landlord (Non-Resident):

Setup: Tom owns a rental property (has DP-3, $20,000 Coverage C for landlord items). He takes the lawn mower to another property and it's stolen.

Result: Worldwide coverage = 10% of $20,000 = $2,000 max. Mower is covered - it's landlord property temporarily away.

Example 2 - Homeowner (Owner-Occupant):

Setup: Lisa LIVES in her home (has HO-3, $100,000 Coverage C). She takes her $2,000 laptop to Italy and it's stolen from the hotel.

Result: Worldwide coverage = 10% of $100,000 = $10,000 max. Her laptop is covered! HO-3 covers all her personal property.

Example 3 - Landlord Who Lives on Property:

Setup: Mike owns a 3-unit building, lives on the 3rd floor, rents out floors 1-2. He has HO-3 (because he's an owner-occupant), Coverage C = $80,000.

What Happens: His $2,000 laptop is stolen on vacation.

Result: Worldwide coverage = 10% of $80,000 = $8,000 max. Laptop is COVERED because Mike's HO-3 covers HIS personal property, and he lives there.

All Forms: NOT Additional Insurance. Guest property: Only covered in DP-2 and DP-3 (not DP-1). Rowboats/canoes excluded.

5

Rental Value & Additional Living Expense

20% of Coverage A

What it does: Provides automatic coverage for lost rent (landlords) or living expenses (owner-occupants) if you didn't buy Coverage D or E.

Real Example:

The Setup: Jim has DP-2 with $150,000 Coverage A but forgot to buy Coverage D (Fair Rental Value). His rental property has a fire and tenants must leave for 3 months.

What Happens: Jim loses $1,500/month rent = $4,500 total loss.

The Result: This "Other Coverage" gives him 20% of Coverage A = $30,000 for rental value. His $4,500 loss is covered!

DP-2 & DP-3:

IS Additional Insurance

Covers BOTH rental value AND ALE

DP-1:

NOT Additional (reduces Coverage A)

Only covers Fair Rental Value (no ALE)

6

Reasonable Repairs

No specific limit

What it does: Pays for emergency repairs to prevent MORE damage right after a covered loss.

Real Example:

The Setup: A windstorm blows a hole in Karen's roof on a Friday night. Rain is expected Saturday.

What Happens: Karen can't wait for the insurance adjuster - she needs to protect her home NOW. She pays $800 for an emergency tarp service to cover the hole.

The Result: Reasonable Repairs coverage pays the $800 tarp cost (plus the roof repair). This prevents water damage that would have cost thousands more.

All Forms: NOT Additional Insurance - reduces your dwelling limit. Only covers repairs "at the time of loss" to prevent further damage.

7

Property Removed

5 days (DP-1) or 30 days (DP-2/3)

What it does: Covers your property while you're moving it to safety during an emergency.

Real Example:

The Setup: A wildfire is approaching Dave's neighborhood. He evacuates, loading his electronics and valuables into his car and taking them to his brother's house.

What Happens: While at his brother's house, thieves break into Dave's car and steal his TV and laptop.

The Result: Property Removed coverage kicks in. Even though the theft wasn't related to the fire, the property was being protected from a covered peril (fire). Coverage applies!

MAGIC UPGRADE!

While property is removed from your home, it's covered on an OPEN PERIL basis - even if you only have named peril coverage! This is one of the best hidden benefits in the policy.

DP-1:

Only 5 days of coverage

DP-2 & DP-3:

30 days of coverage

8

Fire Department Service Charge

$500 max

What it does: Pays when fire departments charge for responding (common in rural areas without tax-funded fire service).

Real Example:

The Setup: Emma lives in a rural area served by a volunteer fire department that charges for responses.

What Happens: A grease fire in her kitchen triggers a 911 call. The fire department puts it out, then sends a bill for $450.

The Result: This coverage pays the $450 fire department bill - AND there's no deductible!

TWO Bonuses!

1. IS Additional Insurance (free money)

2. NO deductible applies!

Quick Summary: Which Are "Additional Insurance"?

Remember: "Additional" = free extra money. "Not Additional" = eats into your limits.

Coverage DP-1 DP-2 & DP-3
1. Other Structures (10% of A) NOT Additional IS Additional
2. Debris Removal NOT Additional NOT Additional
3. Improvements (10% of C) NOT Additional IS Additional
4. Worldwide (10% of C) NOT Additional NOT Additional
5. Rental Value/ALE (20% of A) NOT Additional IS Additional
6. Reasonable Repairs NOT Additional NOT Additional
7. Property Removed 5 days 30 days
8. Fire Dept Charge ($500) IS Additional + No Deductible! IS Additional + No Deductible!

BONUS Coverages - DP-2 and DP-3 ONLY

These 4 coverages are NOT in DP-1 Basic Form. They're another reason why DP-2/3 are better policies.

Lawns, Trees, Shrubs, Plants

$500/item max 5% of Cov A total

Real Example:

The Setup: Bob has DP-2 with $200,000 Coverage A. A car loses control and crashes through his yard, destroying his $3,000 Japanese maple tree and $1,500 in shrubs.

What Happens: The tree and shrubs were damaged by a "vehicle not owned by insured" - a covered peril.

The Result: Coverage pays $500 for the tree (max per item) + $500 for shrubs = $1,000. Total limit: 5% of $200,000 = $10,000 per loss. IS Additional Insurance!

Limited Perils: Only fire, lightning, explosion, riot, aircraft, vehicles (not yours), VMM. NOT theft, NOT wind/hail!

Breakage of Glass

Covers glass that's part of the building (windows, storm doors) plus damage caused BY the broken glass.

Real Example:

The Setup: A baseball crashes through Amy's living room window.

What Happens: The broken glass ruins her curtains and scratches her hardwood floor.

The Result: Glass Breakage covers the window replacement AND the damage to curtains/floor caused by the glass!

Warning: NO coverage if property has been vacant 60+ consecutive days. (Exception: glass broken by earth movement is still covered.)

Collapse

Covers the building falling down so it can't be occupied. Must be "abrupt" - not gradual.

Covered IF Caused By:

  • - Any Broad Form peril (fire, windstorm, etc.)
  • - Hidden decay or insect/vermin damage (if insured didn't know about it)
  • - Weight of contents, people, or rain collecting on roof
  • - Defective construction materials or methods (only during construction)

NOT Collapse: Settling, cracking, bulging, expansion, or shrinking. These are gradual - not "abrupt falling down."

Ordinance or Law

10% of Cov A (or B)

Pays extra costs to meet current building codes when rebuilding after a loss.

Real Example:

The Setup: Chris's 1970s house has a fire that destroys 40% of the structure. His Coverage A is $250,000.

What Happens: City says: "If you rebuild, you must bring the ENTIRE house up to current electrical code" - not just the damaged part.

The Result: Ordinance or Law coverage pays up to 10% of $250,000 = $25,000 extra for code upgrades. This is ADDITIONAL insurance on top of the repair costs!

Key Point: Covers both DAMAGED and UNDAMAGED portions that need upgrading. IS Additional Insurance.

Numbers to Memorize

10%

Other Structures

(of Cov A)

10%

Improvements

(of Cov C)

10%

Worldwide

(of Cov C)

20%

Rental/ALE

(of Cov A)

$500

Fire Dept

(no deductible!)

$500

Per Tree/Shrub

(DP-2/3 only)

5%

Trees/Plants Total

(of Cov A)

10%

Ordinance/Law

(of Cov A or B)

Memory Trick:

Most percentages are 10%. The only exceptions: Rental/ALE is 20%, Trees total is 5%. Fire Dept and Trees/item are both $500.

7. General Exclusions in Dwelling Policies

Start Here: Understanding Exclusions

What ARE Exclusions?

Things the insurance company will NEVER pay for, no matter what. Even if a covered peril causes the damage, these losses are NOT covered.

WHY Do Exclusions Exist?

To keep premiums affordable by NOT covering: (1) things that are uninsurable, (2) things covered by other policies, or (3) things the insured can prevent.

Dwelling policy forms (DP-1, DP-2, DP-3) contain several general exclusions found in ALL forms. These exclusions apply regardless of what caused the loss. Think of them as the "hard no's" of insurance.

The 3 Categories of Exclusions

1

Catastrophic Events

War, nuclear, flood, earthquake - too big to insure in standard policies

2

Intentional Acts

You can't burn down your house and collect insurance

3

Maintenance Issues

Gradual damage, wear and tear, neglect - your job to maintain

Exclusion 1: Ordinance or Law

The policy does NOT cover extra costs that result from government building codes or laws.

What Does This Mean?

When a building is damaged, local building codes may require you to upgrade to current standards when repairing. The extra cost of meeting these new codes is NOT covered by the basic policy.

Real-World Example: The Outdated Wiring

The Setup: Mike's 1960s house has old knob-and-tube electrical wiring (legal when built, but no longer up to code). A fire damages the kitchen.

What Happens: The city inspector says Mike must rewire the ENTIRE house to modern code before repairs can begin. This costs $25,000 extra.

The Result: Insurance pays to repair the fire damage, but the $25,000 rewiring cost is NOT covered under basic policy. It's an "ordinance or law" expense.

Good News: DP-2 and DP-3 include "Ordinance or Law" coverage in the "Other Coverages" section - it provides up to 10% of Coverage A for these costs. Still limited, but helpful!

Exclusion 2: Earth Movement

The policy does NOT cover damage from the earth moving - whether natural or man-made.

NOT COVERED:

  • - Earthquake
  • - Landslide
  • - Mudflow
  • - Sinkhole
  • - Earth sinking, rising, or shifting
  • - Mine subsidence

EXCEPTION - Fire IS Covered:

If earth movement causes a fire, the fire damage IS covered. The earthquake itself isn't covered, but the fire it started is!

Real-World Example: The Earthquake and the Gas Line

The Setup: An earthquake hits and damages Jane's house in two ways: (1) cracks the foundation ($30,000), and (2) ruptures a gas line, causing a fire that burns the garage ($40,000).

What Happens: Jane files a claim for $70,000 total damage.

The Result: Insurance pays $40,000 for the fire damage (fire is covered!). But the $30,000 foundation crack is NOT covered - that's earthquake damage (earth movement).

Exclusion 3: Water Damage (External)

The policy does NOT cover water damage from external sources. This is one of the MOST TESTED exclusions!

Key Distinction: EXTERNAL vs INTERNAL Water

External water (from outside the building) = EXCLUDED. Internal water (from inside, like burst pipes) = COVERED in DP-2/DP-3.

NOT COVERED (External Water):

  • - Flood (rising water)
  • - Surface water
  • - Waves, tidal water
  • - Overflow of body of water
  • - Spray from any of the above
  • - Water below the surface (groundwater)
  • - Sewer/drain backup

COVERED (Internal Water - DP-2/DP-3):

  • - Burst pipes
  • - Accidental discharge from plumbing
  • - Overflow from appliances (washer, dishwasher)
  • - Water heater rupture

Real-World Example: Two Rainstorms, Different Outcomes

Scenario A: Heavy rain causes the nearby river to overflow. Water rises and enters Tom's basement through the walls. Result: NOT COVERED - this is flood (rising external water).

Scenario B: Heavy rain causes Tom's roof to leak because wind damaged some shingles. Water enters through the roof. Result: COVERED - this is wind damage (a covered peril in DP-2/DP-3) that let rain in.

Exam Tip: If water comes FROM THE GROUND UP (flooding) = NOT covered. If water comes FROM THE SKY DOWN through a hole caused by a covered peril (like wind) = COVERED. Direction matters!

Exclusion 4: Power Failure

The policy does NOT cover loss caused by power failure if the failure originates off the premises.

NOT COVERED:

Power failure happens at the power plant or on power lines (off-premises) and your food spoils.

EXCEPTION - On-Premises:

If a covered peril (like lightning) damages YOUR electrical system and causes power failure, resulting damage IS covered.

Real-World Example: The Ice Storm

The Setup: A major ice storm knocks down power lines in the neighborhood. Linda's power is out for 5 days. All her food in the freezer spoils ($800 loss).

What Happens: Linda files a claim for the spoiled food.

The Result: NOT COVERED - the power failure originated OFF the premises (at the power lines). If lightning had struck HER house and damaged HER electrical panel, that would be different!

Exclusion 5: Neglect

The policy does NOT cover loss if the insured fails to use reasonable means to protect property during or after a loss.

Your Duty to Protect

After a covered loss occurs, you must take reasonable steps to prevent further damage. If you don't, the insurance company won't pay for the additional damage caused by your neglect.

Real-World Example: The Broken Window

The Setup: A windstorm breaks a large window in Bob's living room (covered peril). Rain is in the forecast.

What Happens: Bob does nothing to cover the broken window. It rains that night and water ruins the hardwood floors and furniture inside.

The Result: Insurance pays for the broken window (wind is covered). But the water damage to floors and furniture? NOT COVERED - Bob neglected his duty to protect the property. He should have tarped or boarded up the window.

Exclusion 6: War

The policy does NOT cover loss caused by war, including undeclared war, civil war, insurrection, rebellion, or revolution.

Why This Exclusion Exists

War is catastrophic and unpredictable. Insurance companies cannot accurately price or reserve for war-related losses. This is considered an "uninsurable" risk for standard property policies.

This includes: war, undeclared war, warlike action by military forces, insurrection, rebellion, revolution, seizure of power, and action taken by government to prevent these.

Exclusion 7: Nuclear Hazard

The policy does NOT cover loss from nuclear reaction, radiation, or radioactive contamination.

Why This Exclusion Exists

Similar to war - nuclear incidents are catastrophic, hard to predict, and would cause widespread damage that no insurance company could pay for. Nuclear power plants carry separate, government-backed insurance.

Note: This does NOT exclude fire caused by nuclear hazard if fire is a covered peril. If a nuclear incident causes a fire that spreads to your home, the fire damage could be covered!

Exclusion 8: Intentional Loss

The policy does NOT cover loss caused intentionally by or at the direction of the insured.

The "No Arson" Rule

You cannot profit from insurance by destroying your own property. This would be fraud and arson - both crimes. Insurance only covers accidental, unexpected losses.

Real-World Example: Insurance Fraud

The Setup: Steve owes $300,000 on his mortgage but his house is only worth $200,000. He decides to burn it down and collect insurance.

What Happens: Fire investigators discover evidence of arson and Steve's involvement.

The Result: NOT COVERED - intentional loss. Plus, Steve faces criminal charges for arson and insurance fraud!

Exclusion 9: Governmental Action

The policy does NOT cover loss from seizure, confiscation, or destruction of property by government or public authority.

Real-World Example: The Condemned Building

The Setup: The city condemns and demolishes a row of buildings because they're structurally unsafe (not due to any covered peril, just age and deterioration).

What Happens: Property owner files a claim for the demolished building.

The Result: NOT COVERED - this is governmental action, not a covered peril.

Exception: If the government destroys your property to prevent the spread of fire (like a firebreak), the loss IS covered. That's different from condemnation for code violations.

Quick Reference: All General Exclusions

1

Ordinance or Law

2

Earth Movement

3

Water (External)

4

Power Failure (Off-Premises)

5

Neglect

6

War

7

Nuclear Hazard

8

Intentional Loss

9

Governmental Action

Memory Trick: "WE NOW PING"

War - Earth movement - Nuclear - Ordinance/Law - Water (external) - Power failure - Intentional - Neglect - Government action

Exam Trap Alerts

1. DP-3 is Open Peril for DWELLING ONLY

Personal property (contents) is still covered on a NAMED PERIL basis in DP-3. Only the dwelling and other structures are open peril.

2. Coverage E (ALE) is NOT in DP-1

Additional Living Expense is only included in DP-2 and DP-3. For DP-1, it must be added by endorsement.

3. The 60-Day Vacancy Rule (Two Effects!)

After 60+ consecutive days vacant, two things happen: (1) Vandalism coverage drops to $0 — completely eliminated, along with VMM, water discharge, burglary damage, and glass breakage. (2) All other covered perils (like fire) pay only 85% of the loss — a 15% penalty. Example: $20,000 fire loss after 75 days vacant = insurer pays only $17,000.

4. VMM Requires Extended Coverage First (DP-1)

In DP-1, you cannot add Vandalism & Malicious Mischief coverage unless you first purchase the Extended Coverage perils.

5. "Additional Insurance" vs "Not Additional"

In DP-1, "Other Coverages" generally reduce your Coverage A/C limits. In DP-2/3, most are "additional insurance" - meaning they don't reduce your limits.

6. Hostile Fire vs Friendly Fire

Only HOSTILE fires are covered. A friendly fire (contained in fireplace/stove) is NOT covered unless it escapes its boundaries.

7. Coverage D vs Coverage E

D = Fair Rental Value (for LANDLORDS losing rent). E = Additional Living Expense (for OWNER-OCCUPANTS displaced from their home).

Quick Reference Summary

DP-1 Basic

  • - Fire, Lightning, Internal Explosion
  • - Optional: Extended Coverage (WHARVES)
  • - Optional: VMM (needs Extended first)
  • - NO Coverage E unless endorsed

DP-2 Broad

  • - All DP-1 + Extended + VMM included
  • - Plus 7 Broad perils (B.B. BICE-GOLF)
  • - Coverage E included
  • - Glass breakage, Collapse, Trees/Plants

DP-3 Special

  • - OPEN PERIL for dwelling/structures
  • - Named peril for contents
  • - Theft of building parts covered
  • - Ice dam coverage

Coverages

  • - A: Dwelling
  • - B: Other Structures
  • - C: Personal Property
  • - D: Fair Rental Value
  • - E: Additional Living Expense

Key Numbers

  • - $250: Standard deductible
  • - 60 days: Vacancy period
  • - 5 boarders: Max allowed
  • - 4 units: Max residential
  • - 2 workers: Max for incidental business

Mnemonics

  • - WHARVES: Extended Perils
  • - B.B. BICE-GOLF: Broad Perils

HOMEOWNERS POLICIES

HO-2, HO-3, HO-4, HO-5, HO-6, HO-8 Forms

Homeowners Policy Overview

The Homeowners Policy is a package policy that combines property and liability coverages into a single contract. It is the most common form of residential property insurance in the United States.

Package Policy

Combines Section I (Property) and Section II (Liability) coverages in one policy - more convenient than separate policies.

Owner-Occupied Required

Unlike Dwelling policies, most HO forms require owner-occupancy (except HO-4 for renters and HO-6 for condo owners).

Homeowners vs Dwelling Policy

Feature Homeowners (HO) Dwelling (DP)
Liability Included Yes - Always No - Must be endorsed
Owner-Occupied Required (most forms) Not required
Best For Primary residence Rental properties
Medical Payments Included Not included

ISO Homeowners Forms

Memory Tip

There is NO HO-1 (it was discontinued) and NO HO-7 (reserved for mobile homes which use an endorsement instead).

HO-2

BROAD

Broad Form

  • Named Perils for dwelling AND contents
  • Covers 16 named perils
  • Owner-occupied only

HO-3

MOST COMMON

Special Form

  • Open Peril for DWELLING
  • Named Peril for CONTENTS
  • Most popular HO form in US

HO-4

RENTERS

Contents Broad Form

  • For TENANTS/RENTERS
  • NO dwelling coverage (Cov A)
  • Covers personal property + liability

HO-5

PREMIUM

Comprehensive Form

  • Open Peril for BOTH
  • Dwelling AND Contents open peril
  • Broadest coverage available

HO-6

CONDO

Unit-Owners Form

  • For CONDO/CO-OP owners
  • Covers unit interior + contents
  • Association covers building exterior

HO-8

OLDER HOMES

Modified Coverage Form

  • For OLDER/HISTORIC homes
  • Market value exceeds replacement cost
  • Functional replacement cost basis

Real-World Scenario: Choosing the Right HO Form

The Johnsons buy a typical single-family home and live there full-time. Best Choice: HO-3 - covers their home with open perils and contents with named perils. Most common choice.

Sarah rents an apartment downtown. She doesn't own the building but has furniture and belongings. Best Choice: HO-4 - "Renters Insurance" covers her stuff and provides liability.

The Garcias own a condo unit. The HOA covers the building exterior. Best Choice: HO-6 - covers their unit's interior, improvements, and personal property.

The Smiths own a 150-year-old Victorian with ornate plasterwork. Replacement cost is $800K but market value is $400K. Best Choice: HO-8 - uses functional replacement cost to keep premiums reasonable.

HO Forms Comparison Chart

Form Name Dwelling Coverage Contents Coverage Best For
HO-2 Broad Form Named Perils Named Perils Budget-conscious homeowners
HO-3 Special Form Open Perils Named Perils Most homeowners (most popular)
HO-4 Contents Broad None Named Perils Renters/Tenants
HO-5 Comprehensive Open Perils Open Perils Maximum protection
HO-6 Unit-Owners Unit interior only Named Perils Condo/Co-op owners
HO-8 Modified Coverage Named Perils Named Perils Older/Historic homes

Section I: Property Coverages

Section I covers the insured's property. It includes the dwelling, other structures, personal property, and additional coverages. Similar to Dwelling Policy coverages, but with some important differences.

Coverage A: Dwelling

Covers the house structure and attached structures (garage, deck, porch).

  • Building materials on premises
  • Permanently installed fixtures
  • Outdoor equipment used for service
  • Minimum required: Varies by insurer

Coverage B: Other Structures

Detached structures on the premises.

  • Detached garage, shed, fence, pool
  • Default: 10% of Coverage A
  • NOT structures used for business
  • NOT structures rented to non-residents

Coverage C: Personal Property

Contents owned by insured or family members.

  • Default: 50% of Coverage A
  • 10% available while temporarily away
  • Special limits on certain items
  • Worldwide coverage for personal property

Coverage D: Loss of Use

Covers living expenses when home is uninhabitable.

  • Default: 20% of Coverage A
  • Additional Living Expense (ALE)
  • Fair Rental Value (if rented part)
  • Prohibited Use (civil authority access)

Coverage Percentages (Based on Coverage A)

100%

Coverage A

Dwelling

10%

Coverage B

Other Structures

50%

Coverage C

Personal Property

20%

Coverage D

Loss of Use

Example: If Coverage A = $300,000, then B = $30,000, C = $150,000, D = $60,000

Real-World Scenario: House Fire Claim Breakdown

The Setup: The Martinez family has an HO-3 with Coverage A = $300,000. A kitchen fire spreads and causes significant damage. They need to understand exactly what their policy pays.

What's Damaged and What Gets Paid:

Coverage A - Dwelling

Kitchen destroyed, roof damage, smoke throughout = $85,000

Limit: $300,000 - Plenty of coverage

Coverage B - Other Structures

Detached shed caught sparks = $8,000

Limit: $30,000 (10%) - Covered in full

Coverage C - Personal Property

Furniture, appliances, clothes ruined = $45,000

Limit: $150,000 (50%) - Covered in full

Coverage D - Loss of Use

Hotel + meals for 3 months = $12,000

Limit: $60,000 (20%) - Covered in full

Total Claim Paid: $85,000 + $8,000 + $45,000 + $12,000 = $150,000

The Martinez family had adequate coverage. If they had underinsured (say, only $200,000 on Coverage A), they might face a coinsurance penalty on top of being short on limits!

Key Concept: ACV vs. Replacement Cost (RC)

ACV (Actual Cash Value)

Formula: Replacement Cost - Depreciation

Example: 5-year-old TV

Cost to replace: $1,000

Depreciation (50%): -$500

ACV Payment: $500

Replacement Cost (RC)

Formula: Full cost to replace with like kind and quality

Example: Same 5-year-old TV

Cost to replace: $1,000

Depreciation: $0 (not deducted!)

RC Payment: $1,000

Exam Tip: Most HO-3 policies pay RC for the dwelling and ACV for contents unless you add the Personal Property Replacement Cost endorsement!

Special Limits on Personal Property (Coverage C)

Exam Alert!

These dollar limits are frequently tested. They are sublimits within Coverage C - even if you have $150,000 in contents coverage, these specific items are capped at these amounts.

$200

Money, coins, bank notes, medals

$1,500

Securities, deeds, manuscripts, stamps, tickets

$1,500

Watercraft and trailers (theft only)

$1,500

Jewelry, watches, furs, precious stones (theft only)

$2,500

Firearms (theft only)

$2,500

Silverware, goldware, pewterware (theft only)

$2,500

Business property ON premises

$500

Business property OFF premises

$1,500

Electronic apparatus in motor vehicle

Real-World Scenario: Why Special Limits Matter

The Setup: Jennifer has an HO-3 with $150,000 in Coverage C. She owns a $10,000 diamond engagement ring and $5,000 in gold coins.

What Happens: A burglar breaks in and steals both the ring and coins.

The Result: Jennifer only gets $1,500 for the jewelry and $200 for the coins due to special limits - not the $15,000 she lost! She should have purchased a Personal Articles Floater (scheduled coverage) for full protection.

Section I: Perils Covered

16 Named Perils (HO-2, HO-4, HO-6, contents in HO-3)

Memory Trick: "W.C.SHAVER" plus more perils

1. Fire/Lightning 2. Windstorm/Hail 3. Explosion 4. Riot/Civil Commotion 5. Aircraft 6. Vehicles 7. Smoke 8. Vandalism/MM 9. Theft 10. Falling Objects 11. Weight of Ice/Snow 12. Accidental Discharge 13. Sudden Tearing 14. Freezing 15. Electrical Surge 16. Volcanic Eruption

Open Peril (All-Risk)

Covers ALL perils EXCEPT those specifically excluded.

  • Broadest coverage available
  • Burden of proof on INSURER to deny
  • Used for dwelling in HO-3 and HO-5

Named Peril

ONLY covers perils specifically listed in policy.

  • More limited coverage
  • Burden of proof on INSURED to prove peril
  • Used for contents in HO-3, all of HO-2/4/6/8

Section I: Exclusions

Important!

These are things your Homeowners policy will NEVER pay for, no matter what. The exam loves to test these!

Earth Movement

Earthquake, landslide, mudflow, sinkhole, mine subsidence - all excluded.

NOT COVERED Example:

An earthquake cracks your foundation and collapses the chimney. Damage: $50,000. Your HO-3 pays: $0. You needed a separate earthquake endorsement or policy.

Water Damage (Flood-Type)

Flood, surface water, waves, tidal water, overflow of a body of water, sewer backup, underground water.

NOT COVERED:

River overflows and floods your basement with 3 feet of water. This is FLOOD - excluded. Need separate flood insurance (NFIP).

COVERED (Different!):

Pipe bursts inside your home and floods the basement. This is accidental discharge - COVERED (it's not flood, it's plumbing failure).

Power Failure

If the power outage originates OFF your premises.

NOT COVERED:

City-wide power outage lasts 3 days. All the food in your freezer spoils ($500 loss). Outage started at power company - NOT covered.

COVERED:

Lightning strikes YOUR house and fries your electrical panel, causing a power loss. Food spoils. Started ON premises - COVERED.

Neglect

Failure to use reasonable means to protect property after a loss.

NOT COVERED Example:

A tree falls through your roof. Instead of tarping it, you leave for vacation. Rain pours in for 2 weeks, ruining everything. Initial tree damage: covered. Additional rain damage caused by your neglect: NOT covered.

Intentional Loss

Any intentional act by or at the direction of the insured.

NOT COVERED Example:

Homeowner is mad at his house and sets fire to the garage. Arson by insured = NO coverage, ever. (Also a crime!)

Wear and Tear / Maintenance

Gradual deterioration, rust, rot, settling, cracking, insects, rodents.

NOT COVERED Example:

Your 25-year-old roof finally leaks because it's worn out. Water damages the ceiling. This is maintenance failure, NOT a covered peril. You should have replaced the roof.

Ordinance or Law

Extra costs to bring building up to current code. EXCLUDED by default, but can be endorsed.

Example (Usually NOT Covered):

Fire damages 40% of your 1960s home. City says: "If you rebuild, you must upgrade the entire electrical system to current code." Fire repair: $80,000 (covered). Code upgrade: $25,000 (excluded unless you have Ordinance or Law endorsement).

Section I: Conditions

What are Conditions?

These are the "rules of the game" - what you and the insurance company must do for the policy to work properly. Violate these and you might lose coverage!

Insurable Interest

You must have insurable interest at time of loss to recover.

Example:

You sell your house on January 15. On January 20, it burns down. Even though your policy was still active, you can't collect - you no longer owned the house when the loss occurred.

Duties After Loss

After a loss, YOU must: protect property from further damage, give prompt notice to insurer, prepare inventory, cooperate with investigation, provide sworn proof of loss.

Example:

A pipe bursts at 2am. You must: (1) shut off the water, (2) call your insurer, (3) take photos and document damage, (4) cooperate when the adjuster comes. If you just go back to bed and let water flood for 8 hours, insurer can deny the additional damage.

Loss to a Pair or Set

Insurer may repair/replace any part OR pay the difference in value - NOT automatic total loss.

Example:

You have $5,000 matching diamond earrings. One is stolen. You might think: "Now the set is worthless - pay me $5,000!" But insurer can choose to: (1) replace just the one earring, (2) pay the difference in value between a matched pair and a single earring. They DON'T have to pay for both.

Appraisal Clause

Either party can demand appraisal when disputing VALUE (not coverage). Each picks an appraiser; appraisers pick an umpire. Two of three must agree.

Example:

Fire damages your kitchen. You say repairs cost $50,000. Insurer says $30,000. You're both stuck. You demand appraisal. Your appraiser says $48,000, their appraiser says $32,000. They pick an umpire who says $42,000. Two of three agree on $42,000 - that's what you get.

Mortgage Clause

Protects the bank's interest. Bank gets notice of cancellation and can pay premium to keep policy in force.

Example:

You stop paying your insurance premium. Insurer sends cancellation notice to YOU and to the BANK (mortgagee). Bank can pay the premium themselves to keep coverage active - they don't want their collateral uninsured!

Suit Against Us

You must comply with policy conditions AND bring lawsuit within 1 year after loss.

Example:

Fire destroys your house on March 1, 2024. Insurer denies your claim. You're mad and want to sue. You MUST file your lawsuit by March 1, 2025 (1 year). Wait until March 15, 2025? Too late - your lawsuit is time-barred.

Section II: Liability Coverages

Section II provides liability protection when the insured is legally responsible for bodily injury or property damage to others. This is what makes Homeowners a package policy - it combines property AND liability.

Coverage E: Personal Liability

Covers legal liability for bodily injury or property damage caused by the insured.

$100,000

Minimum per occurrence

  • Pays damages insured is legally liable for
  • Pays defense costs IN ADDITION to limit
  • Can be increased to $300K, $500K, or more

Coverage F: Medical Payments to Others

Pays medical expenses for others injured on your property - regardless of fault.

$1,000

Per person minimum

  • NO liability required - pays medical only
  • Prevents small claims from becoming lawsuits
  • Does NOT cover insured's household

Coverage F: THIRD PARTIES ONLY!

Coverage F NEVER covers the insured, their spouse, children, or anyone living in the household. It only pays for injuries to third parties — guests, visitors, delivery people, mail carriers, etc.

COVERED by F

Delivery person trips on steps, neighbor's kid falls in yard, guest slips on wet floor

NOT COVERED by F

Insured breaks arm, spouse cuts hand, child falls off bike, live-in relative injured

Coverage E vs F - Key Difference!

Coverage E (Personal Liability)

Requires legal liability - insured must be at fault

Coverage F (Medical Payments)

NO fault required - pays regardless of who's responsible

Real-World Scenario: E vs F in Action

Scenario A: Guest slips on your icy sidewalk you forgot to salt. They break an arm and sue you for $50,000.

Coverage E pays - you were negligent (failed to clear ice), so you're legally liable.

Scenario B: Guest trips over their own shoelace while visiting and sprains their ankle. Medical bills are $800.

Coverage F pays - not your fault, but F pays medical expenses anyway to maintain goodwill.

Section II: Exclusions

Motor Vehicle Liability

Covered by auto policy, not homeowners

Watercraft Liability

Large boats excluded (small boats may be covered)

Aircraft Liability

Requires aviation insurance

Business Pursuits

Business activities need commercial coverage

Professional Services

Malpractice needs E&O policy

Intentional Injury

No coverage for deliberate harm

Communicable Disease

Transmission of disease to others

Sexual Molestation

Criminal acts excluded

Controlled Substances

Drug-related liability excluded

NOT COVERED - Real Scenarios

Motor Vehicle

You back out of your driveway and hit your neighbor's parked car. NOT COVERED by homeowners - this is an auto claim.

Business Pursuits

You run a daycare from your home. A child is injured in your care. NOT COVERED - business activity requires commercial policy.

Professional Services

You're a CPA working from home. Client claims your tax advice caused them financial loss. NOT COVERED - needs E&O insurance.

Intentional Injury

You punch your neighbor during an argument. They sue for medical bills. NOT COVERED - you intended to cause harm.

Watercraft

You injure a swimmer with your 30-foot speedboat. NOT COVERED - large boats need separate boat insurance.

Aircraft

Your drone crashes into a neighbor's window. NOT COVERED - aircraft liability is excluded (though some insurers are adding drone coverage).

Special Exclusion: Damage to Insured's Own Property

Section II (Liability) does NOT cover damage to the insured's own property - that's what Section I (Property) is for! Liability covers damage to OTHER people's property.

Section II: Additional Coverages

Claim Expenses

Pays expenses incurred by insurer in defending claims - paid IN ADDITION to policy limits.

First Aid Expenses

Covers first aid given to others at the time of an accident.

Damage to Property of Others

Up to $1,000 per occurrence for damage to others' property - regardless of legal liability. Does NOT cover business property, intentional damage by insured 13+, or property owned/rented by insured.

Loss Assessment

Up to $1,000 for assessments by homeowner association for liability losses.

Key Homeowners Definitions

Why Definitions Matter

These definitions determine WHO is covered. The exam loves to test whether specific people qualify as "insureds" under the policy.

"Insured" - Who is Covered?

  • 1. Named insured and spouse (if resident)
  • 2. Relatives who are residents of the household
  • 3. Anyone under 21 in care of named insured
  • 4. Full-time students under 24 who were residents before leaving for school

Who Counts as "Insured"? - Examples:

INSURED:

Your 20-year-old daughter away at college. She was a resident before leaving - still covered under your policy.

INSURED:

Your 16-year-old nephew who lives with you. Relative + resident = insured.

NOT INSURED:

Your 25-year-old daughter who graduated and has her own apartment. No longer a resident or student under 24.

NOT INSURED:

Your best friend who crashes on your couch for a month. Not a relative - doesn't qualify.

"Residence Premises"

The dwelling where the named insured resides, shown on declarations page. Includes land and other structures.

Example: Your home at 123 Main Street, the land it sits on, and the detached garage in the backyard - all part of the residence premises.

"Business"

Trade, profession, or occupation engaged in for money. Business activities are generally EXCLUDED from HO coverage.

IS Business (Excluded):

You run a daycare from your home. A child is injured. NOT covered - this is business activity.

NOT Business (Covered):

Your neighbor's kid visits to play, trips and breaks an arm. COVERED - this isn't a business activity, just a social visit.

"Occurrence"

An accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage.

Example: Your dog bites the mailman once = one occurrence. Your dog bites 3 different people over a week = could be 3 separate occurrences (each with its own per-occurrence limit).

"Bodily Injury"

Physical injury, sickness, or disease. Includes required care, loss of services, and death.

Example: Guest breaks leg falling on your stairs = bodily injury. Also covers their medical bills, lost wages, pain and suffering.

"Property Damage"

Physical damage to or destruction of tangible property, including loss of use.

Example: Your tree falls on neighbor's car, crushing it = property damage. Includes the cost to repair the car AND a rental car while theirs is being fixed (loss of use).

Common Homeowners Endorsements

Scheduled Personal Property

Lists specific high-value items (jewelry, furs, fine arts) with agreed values. Overcomes special limits in Coverage C.

Personal Property Replacement Cost

Pays full replacement cost for contents instead of ACV. No deduction for depreciation.

Earthquake

Adds earthquake coverage (normally excluded). Has percentage deductible.

Personal Injury

Adds coverage for libel, slander, false arrest, invasion of privacy (beyond bodily injury/property damage).

Home Business

Extends coverage for home-based business property and liability.

Water Backup/Sump Overflow

Covers sewer/drain backup and sump pump failure (normally excluded).

Identity Fraud Expense

Covers expenses to restore identity after fraud - legal fees, lost wages, notary fees.

Ordinance or Law

Covers costs to bring damaged property up to current building codes.

When Do You Need These Endorsements? Real Scenarios

Scheduled Personal Property

Who needs it: Maria has a $15,000 engagement ring and $8,000 art collection.

Why: Without scheduling, she'd only get $1,500 for the ring (theft limit) and $2,500 for art. With scheduling, she gets full agreed value.

Personal Property Replacement Cost

Who needs it: The Chen family has a house full of furniture and electronics.

Why: Without it, their 5-year-old $2,000 couch might only pay $800 (ACV). With RC endorsement, they get full $2,000 replacement.

Water Backup/Sump Overflow

Who needs it: Tom has a finished basement with a home theater system.

Why: Heavy rain overwhelms the sewer, backing up into his basement. Without this endorsement: $0 paid. With it: full coverage for damage.

Home Business

Who needs it: Lisa sells handmade jewelry from her home office.

Why: Standard HO limits business property to $2,500 and excludes business liability. This endorsement extends both.

Earthquake

Who needs it: The Rodriguezes live in California near a fault line.

Why: Earthquake is EXCLUDED from standard HO. Without endorsement, a quake destroying their home = $0 paid.

Ordinance or Law

Who needs it: The Wilsons own a 1960s home with original electrical.

Why: Fire damages 40% of house. City requires bringing entire electrical up to code. Without endorsement, they pay upgrade costs out of pocket.

Homeowners Exam Trap Alerts

1. HO-3: Open Peril for DWELLING only!

Contents (personal property) are still named perils in HO-3. Only HO-5 is open peril for BOTH.

2. Coverage F: No Fault AND Third Parties ONLY

Medical Payments to Others (F) pays regardless of liability, but ONLY for third parties (guests, visitors). It NEVER covers the insured, their spouse, children, or any household resident. Coverage E requires the insured to be legally liable.

3. Special Limits Apply Even with High Coverage C

Even if you have $200,000 in Coverage C, jewelry is still limited to $1,500 for theft. Schedule valuables separately!

4. No HO-1 or HO-7

HO-1 was discontinued. HO-7 doesn't exist - mobile homes use an endorsement to HO-2 or HO-3.

5. HO-4 (Renters) Has NO Dwelling Coverage

Renters don't own the building, so HO-4 only covers contents and provides liability. The landlord insures the building.

6. Coverage Percentages are Minimums

10% (B), 50% (C), 20% (D) are default percentages of Coverage A. They can be increased but not usually decreased.

7. HO-8 Uses Functional Replacement Cost

Older homes are paid at functional replacement cost - modern materials that serve the same purpose, NOT exact reproduction.

Homeowners Quick Reference Summary

HO Forms

  • - HO-2: Named/Named (Broad)
  • - HO-3: Open/Named (Special) - MOST COMMON
  • - HO-4: Contents only (Renters)
  • - HO-5: Open/Open (Comprehensive)
  • - HO-6: Unit-owners (Condo)
  • - HO-8: Older homes (Modified)

Section I (Property)

  • - A: Dwelling (100%)
  • - B: Other Structures (10%)
  • - C: Personal Property (50%)
  • - D: Loss of Use (20%)

Section II (Liability)

  • - E: Personal Liability ($100K min)
  • - F: Medical Payments ($1K/person)
  • - E requires legal liability
  • - F is "no-fault" coverage

Special Limits (Theft)

  • - $200: Money, coins
  • - $1,500: Jewelry, furs, securities
  • - $2,500: Firearms, silverware
  • - $2,500: Business property on premises

Key Exclusions

  • - Flood, earthquake
  • - Business pursuits
  • - Motor vehicles (liability)
  • - Intentional acts

Key Numbers

  • - $100,000: Min liability (E)
  • - $1,000: Med payments (F)
  • - $1,000: Damage to others' property
  • - 1 year: Suit deadline after loss

MOBILE HOME INSURANCE

Mobilehome Endorsement and Special Considerations

Mobile Home Coverage Overview

Mobile homes (manufactured homes) are covered by adding a Mobilehome Endorsement to an HO-2 or HO-3 policy. There is NO separate "HO-7" form - the endorsement modifies the standard homeowners policy.

How It Works

  • Endorsement attached to HO-2 or HO-3
  • Modifies definitions to fit mobile homes
  • Includes some unique coverages
  • Similar structure to standard HO

Eligibility

  • Must be designed for highway transport
  • Used as primary residence
  • Located at permanent site
  • Not used for business purposes

Unique Mobile Home Coverages

Transportation/Setup

Covers the mobile home during relocation to a new site - a risk not present with traditional homes.

Tie-Down Equipment

Anchoring systems, skirting, and other equipment that secures the mobile home to the foundation.

Coverage Structure (Same as Standard HO)

A

Mobile Home Structure

B

Other Structures

C

Personal Property

D

Loss of Use

Transportation/Setup Coverage

Special Mobile Home Coverage

This coverage is unique to mobile home policies. Traditional homes don't move, so they don't need this!

What's Covered

  • Damage during transportation to new site
  • Collision during transit
  • Upset/overturn during moving
  • Setup at the new location

What's NOT Covered

  • Damage from faulty workmanship
  • Improper securing during transit
  • Mechanical breakdown of towing vehicle
  • Normal wear from transportation

Real-World Scenario: Transportation Coverage

The Setup: The Martinez family purchases a mobile home that must be transported 50 miles to their lot.

What Happens: During transport, a deer runs onto the highway. The driver swerves, and the mobile home tips, causing $15,000 in damage.

The Result: The Transportation Coverage pays for the damage. Without this endorsement, the standard homeowners policy wouldn't cover damage during transport.

Mobile Home Exam Trap Alerts

1. No HO-7 Form Exists!

Mobile homes use a Mobilehome Endorsement attached to HO-2 or HO-3. If the exam mentions "HO-7," it's a trap answer.

2. Transportation Coverage is UNIQUE to Mobile Homes

Standard homeowners policies don't cover the dwelling during transportation because houses don't move!

3. Must Be at Permanent Location

Mobile homes in transit or used as temporary housing may not qualify. It must be the insured's residence at a permanent site.

4. DP-1 Can Cover Mobile Homes Too

Remember from the Dwelling section: DP-1 can cover mobile homes at permanent locations with no more than 1 apartment. Different from the HO endorsement approach.

Personal Lines Complete Summary

Dwelling Policies

  • - DP-1, DP-2, DP-3 forms
  • - For rental properties primarily
  • - NO liability included (endorsement)
  • - Coverages A through E
  • - WHARVES, B.B. BICE-GOLF mnemonics

Homeowners Policies

  • - HO-2, HO-3, HO-4, HO-5, HO-6, HO-8
  • - Package policy (property + liability)
  • - Section I (Property) + Section II (Liability)
  • - HO-3 most common
  • - Special limits on valuables

Mobile Homes

  • - Mobilehome Endorsement to HO-2/HO-3
  • - NO separate HO-7 form
  • - Transportation coverage unique
  • - Tie-down equipment covered
  • - Same coverages A-D as HO