Property And Casualty Insurance License Property Insurance Basics 1 — Questions and Answers
Question 1: What does a standard homeowners insurance policy (HO-3) cover regarding the dwelling?
- Named perils only
- Open perils (all-risk) (Correct answer)
- Flood and earthquake
- Liability only
Correct answer: Open perils (all-risk)
An HO-3 policy covers the dwelling on an open-perils basis, meaning all causes of loss are covered unless specifically excluded.
Question 2: Which of the following is NOT covered by a standard homeowners policy?
- Fire
- Theft
- Flood (Correct answer)
- Windstorm
Correct answer: Flood
Flood damage is excluded from standard homeowners policies and requires a separate policy, typically through the National Flood Insurance Program (NFIP).
Question 3: What is the purpose of coinsurance in a property insurance policy?
- To share the premium with another insurer
- To ensure the insured carries adequate coverage relative to property value (Correct answer)
- To cover losses jointly with the insured
- To reduce deductibles automatically
Correct answer: To ensure the insured carries adequate coverage relative to property value
Coinsurance requires policyholders to insure their property to a specified percentage of its value (usually 80%) or face a penalty at the time of a loss.
Question 4: Under a Dwelling Policy (DP-1), coverage is provided on which basis?
- Open perils
- Named perils (Correct answer)
- Replacement cost
- Agreed value
Correct answer: Named perils
The DP-1 (Basic Form) covers only the named perils specifically listed in the policy, such as fire, lightning, and internal explosion.
Question 5: What is 'actual cash value' (ACV) in property insurance?
- The original purchase price of the property
- Replacement cost minus depreciation (Correct answer)
- The market value of the property
- The cost to rebuild the property new
Correct answer: Replacement cost minus depreciation
Actual cash value is calculated by taking the replacement cost of the item and subtracting accumulated depreciation.
Question 6: Which homeowners form provides the broadest coverage for both the dwelling and personal property?
- HO-1
- HO-2
- HO-3
- HO-5 (Correct answer)
Correct answer: HO-5
The HO-5 (Comprehensive Form) covers both the dwelling and personal property on an open-perils basis, making it the broadest standard homeowners form.
Property And Casualty Insurance License Property Insurance Basics 1
What does a standard homeowners insurance policy (HO-3) cover regarding the dwelling?