Key Takeaways
- Coverage A (Dwelling) covers the main residence structure, attached structures, and fixtures — this is the BASE coverage amount
- Coverage B (Other Structures) is automatically 10% of Coverage A — covers detached garage, shed, fence, but NOT structures used for business
- Coverage C (Personal Property) is typically 50-70% of Coverage A — subject to SUBLIMITS for specific categories (jewelry $1,500, cash $200)
- Coverage D (Loss of Use) provides Additional Living Expense (ALE) when the home is uninhabitable — typically 20-30% of Coverage A
- Personal property is covered WORLDWIDE under Coverage C, but with limits for property away from the residence premises (usually 10% of C)
Section I: Property Coverages
Section I of the homeowners policy protects your property — both the physical structures and your personal belongings. Understanding what each coverage includes is essential for the exam.
Coverage A: Dwelling
The foundation of homeowners coverage
What Coverage A Protects
| Covered | Examples |
|---|---|
| The main residence | The house itself |
| Attached structures | Attached garage, deck, porch |
| Fixtures and installations | Built-in cabinets, plumbing, electrical |
| Materials for construction | Supplies on premises for repairs |
| Permanently installed outdoor equipment | Central A/C units, in-ground pools |
What Coverage A Does NOT Protect
- Land (never insured — cannot be destroyed by covered perils)
- Detached structures (covered under Coverage B)
- Personal property (covered under Coverage C)
Setting Coverage A Limits
Coverage A should equal the dwelling's replacement cost — what it would cost to rebuild the home at today's prices.
Important: Coverage A is NOT the same as market value. A home might have a market value of $400,000 but a replacement cost of $350,000 (excluding land).
Coverage B: Other Structures
Detached buildings and structures
Standard Limit
10% of Coverage A (automatically included)
| Coverage A | Coverage B (10%) |
|---|---|
| $300,000 | $30,000 |
| $400,000 | $40,000 |
| $500,000 | $50,000 |
What Coverage B Protects
- Detached garages
- Storage sheds
- Fences and walls
- Gazebos and pergolas
- Detached workshops
- Guest houses (if not rented)
What Coverage B Does NOT Protect
| Excluded | Reason |
|---|---|
| Structures used for business | Requires commercial coverage |
| Structures rented to others | Requires dwelling policy |
| Structures connected to dwelling | Covered under A |
Coverage C: Personal Property
Your belongings and contents
Standard Limit
50-70% of Coverage A (varies by insurer)
| Coverage A | Coverage C (at 50%) | Coverage C (at 70%) |
|---|---|---|
| $300,000 | $150,000 | $210,000 |
| $400,000 | $200,000 | $280,000 |
What Coverage C Protects
- Furniture and appliances
- Clothing and electronics
- Books, artwork, collectibles
- Sports equipment
- Kitchen items and dishes
- Property of guests (with permission)
Special Limits of Liability (SUBLIMITS)
Certain categories have maximum limits REGARDLESS of total Coverage C:
| Property Category | Typical Sublimit |
|---|---|
| Money, coins, currency | $200 |
| Securities, documents | $1,500 |
| Jewelry, watches, furs | $1,500 for theft |
| Firearms | $2,500 for theft |
| Silverware, goldware | $2,500 for theft |
| Business property on premises | $2,500 |
| Business property away | $500 |
| Watercraft and trailers | $1,500 |
| Electronic equipment in vehicles | $1,500 |
Exam Alert: Sublimits are frequently tested. A $10,000 diamond ring stolen would only be covered up to $1,500 under the standard policy.
Worldwide Coverage
Personal property is covered worldwide, but with limitations:
- On premises: Full Coverage C limit
- Off premises (away from home): Usually 10% of Coverage C
Example:
- Coverage C: $200,000
- Laptop stolen from hotel room: Covered up to $20,000 (10% off-premises)
Coverage D: Loss of Use
Additional Living Expense (ALE)
Standard Limit
20-30% of Coverage A (varies by policy)
What Coverage D Covers
If your home becomes uninhabitable due to a covered loss:
| Expense | Coverage |
|---|---|
| Temporary housing | Hotel, rental property |
| Increased food costs | Restaurant meals above normal |
| Additional transportation | Commuting from temporary location |
| Storage costs | Storing belongings during repairs |
| Moving expenses | To and from temporary housing |
Two Types of Loss of Use
| Type | Who Uses It | What It Pays |
|---|---|---|
| Additional Living Expense (ALE) | Occupant policyholders | Extra costs to maintain normal standard of living |
| Fair Rental Value | If part of home is rented | Lost rental income |
How ALE Works
Formula: Additional Living Expense = Temporary Costs - Normal Living Costs
Example:
- Normal monthly housing costs: $2,000
- Temporary apartment rental: $3,000
- Extra commuting gas: $200
- ALE claim: $1,200/month ($3,200 - $2,000)
Coverage Limit Relationships
| Coverage | Standard Percentage of A |
|---|---|
| A - Dwelling | 100% (base amount) |
| B - Other Structures | 10% of A |
| C - Personal Property | 50-70% of A |
| D - Loss of Use | 20-30% of A |
These percentages can be increased with endorsements for additional premium.
A homeowner has Coverage A (Dwelling) of $400,000. What is the automatic Coverage B (Other Structures) limit?
A $15,000 diamond engagement ring is stolen from the home. The homeowners policy has a Coverage C limit of $200,000. How much will the policy pay?
A fire damages a home and the family must live in a hotel for 3 months while repairs are made. This expense is covered under:
4.4 Section II: Liability Coverages
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