Question

Fill in the blank with the appropriate word(s) for each item. Click Submit. Once submitted, each incorrect answer will be highlighted in red, and correct answers highlighted in green. Please note you will need to correctly answer each item for the activity to be considered complete.

• $80,000
• $4,000
• $24,000
• $20,000
• $60,000
• $8,000
• $40,000

• A.The insured has an HO-3 that covers his single family home for $80,000. What limits would apply to each of the Section I coverages?
  Coverage A:         
  Coverage B:         
  Coverage C:         
  Coverage D:         

Answer 1

A) The one most commonly sold is homeowner's insurance policy is based on the HO-3 policy by the Insurance Services Office (ISO), which is the minimum coverage required by most mortgage lenders.

The 1st part of the policy consists of the declarations, insuring agreement, and definitions. Two major sections of the policy are as follows:

1. Section 1 covers the property and other items related to it.
2. Section 2 covers personal liability.

Section 1 — Property Coverage

• Declarations
  The Declarations section specifies who is insured and the location of the property, and deductibles.

• Insuring Agreement
  This is a short part that basically says that the insurer will provide the client with insurance only if ke/she pays premiums and follow all provisions of the policy.

• Definitions
  This section provides definitions of important terms in the contract, which removes possible ambiguities, which not only helps the insured to understand the contract better, but also protects the insurer, since any ambiguity in an insurance contract may be contested in the court against the insurer by the insured party.

• Coverage A: Dwelling
  This specifies coverage of the main residence and any attached structures, such as a garage. Materials and supplies for repair or new construction to the main residence is also covered. Land is however excluded.
  The amount of coverage on the dwelling determines the amount of coverage for other structures, personal property, and loss of use.

• Coverage B: Other Structures
  This covers any structure not attached to the main dwelling such as a garage or tool shed. The amount of coverage is limited to 10% of the main dwelling.
  Specifically excluded are structures rented out to others, structures to conduct a business, or to store business property,etc with some exceptions.

• Coverage C: Personal Property
  Generally, all unscheduled personal property of the insured where the loss is verifiable and that is not normally covered by other policies is covered, regardless of where it is located. Thus, if a covered college student's computer is stolen at school, then the loss will be covered. The amount of coverage is limited to 50% of Coverage A, although this amount can be increased, if desired, by an endorsement.

• Coverage D: Loss of Use
  If the main dwelling is unfit because of a covered loss, then this policy will cover loss of use expenses and income up to 30% of Coverage A.

Hence, as per the above limits specified for each of the coverages under Section 1 of HO-3 Policy, we can calculate the limits for 4 coverages i.e. A, B, C & D, for the insured who has an HO-3 that covers his single family home for $80,000.

Therefore,

Coverage A - Dwelling :- $80000. (which is the actual coverage amount for the main residence).

Coverage B - Other Structures :- $8000

Coverage C - Personal Property :- $40,000

Coverage D - Loss of Use :- $24,000