Deck 13: Homeowners Insurance

Question 1

The replacement cost of a home covered under the HO-3 policy is $100,000. Assume the home is insured for $50,000 and a $10,000 loss occurs (replacement cost). Also assume depreciation is set at 10% and a $500 deductible applies. How much will the insured recover if the damage is repaired?

A) $9,000
B) $8,500
C) $5,937
D) $6,250

Answer 1

B

Question 2

The Liability coverage in the HO policy does all the following except:

A) defends a suit against the insured even if the allegations of the suit are groundless, false or fraudulent
B) covers the insured's own property destroyed by another's negligence
C) pays for immediate medical and surgical expenses incurred by other(s)
D) reimburses the insured for all reasonable expenses incurred at the request of the company

Answer 2

B

Question 3

Mr. Green's 24-year old son still lives at home while attending college part-time. The son also has an apartment near his college campus. His stereo is stolen from the apartment. The stereo has a $1,400 replacement cost, and an actual cash value of $900. If there is a $100 deductible on Section I, how much will the HO-3 contract pay for the stolen stereo?

A) $800
B) $900
C) $0, because the son is not covered by the contract
D) $1,400

Answer 3

A

Question 4

What is the rationale for having a special limit of liability on for example a stamp collection?

A) There is no limit on the liability for a stamp collection.
B) To prevent moral hazard
C) It is difficult to determine the amount of loss.
D) Both B and C

Question 5

Which of the following is not an exclusion from the HO policy's Liability coverage?

A) Liability assumed under any unwritten contract
B) Property damage to property owned by the insured
C) Damage to property in the care, custody or control of the insured by all perils
D) Liability arising out of the ownership or maintenance of the residence premises

Question 6

All of the following losses are covered in an HO-3 policy except:

A) damage done to the house by neighborhood vandals
B) damage done to shrubbery during a fire
C) loss of use of the property following a fire
D) damage done to the building and contents caused by a flash flood

Question 7

The homeowners policy agrees to cover the peril of collapse in the "Additional Coverage" section and not as a specified peril because:

A) of concurrent causation
B) of moral hazard
C) all perils are not defined in the contract
D) collapse of buildings should not be covered

Question 8

Replacement cost is most closely synonymous with:

A) original purchase price
B) actual cash value less depreciation
C) accounting book value
D) reconstruction cost

Question 9

Which of the following is not a part of the HO-3 policy layout?

A) Definitions
B) Exclusions
C) Conditions
D) All of the above are a part of the HO-3 policy layout.

Question 10

The named insured leaves a suitcase filled with clothing on the seat of his unattended, unlocked automobile. The loss is valued at $900 replacement cost and a depreciated value of $700. The HO-3 contract has a $200 deductible on Section I. How much will the HO-3 contract pay for this loss?

A) $0 (because the clothing was in an automobile)
B) $700
C) $500
D) $0 (because the automobile was unlocked)

Question 11

The replacement cost of a home covered under the HO-3 policy is $100,000. Assume the home is insured for $50,000 and a $10,000 loss occurs (replacement cost). Also assume depreciation is set at 10 percent. Assume that there is no deductible. How much will the insured recover if repaired?

A) $9,000
B) $10,000
C) $8,000
D) $6,250

Question 12

Medical Payments coverage in the HO-3 policy covers all of the following except:

A) a guest slips and falls in the shower
B) during a delivery, a milkman stumbles over a child's wagon and breaks his leg
C) the insured stumbles down the porch while entering his own home and breaks his arm
D) the insured accidentally hits someone with a golf ball on the golf course; the person needs medical treatment

Question 13

Mr. Xavier has an HO-3 contract with $100,000 dwelling coverage, $50,000 personal property coverage, and a $500 deductible. The dwelling is 50% depreciated. Sewage backs up into the basement and destroys the furnace, which will cost $8,000 to replace. The policy will pay:

A) nothing because of the water damage exclusion
B) nothing because the property is not covered
C) $7,500 because of replacement cost coverage
D) $3,500 because of actual cash value and the deductible

Question 14

All of the following are rights extended to mortgagees (banks) under the mortgage clause in the HO contract except:

A) to sue under the policy in its own name
B) to foreclose on property if the insured homeowner tries to defraud the insurer
C) to receive payments from the insurer
D) to be economically protected

Question 15

Joe has an HO-3 policy. He also has an unattached converted garage that he has turned into an apartment, and he rents it to a full-time college student. The apartment is destroyed by fire. What will happen with the claim according to the HO-3 contract?

A) Since fire is an excluded peril, nothing will be paid.
B) The peril of fire is not covered when it damages unattached structures.
C) There will be no payment because a rented other structure is excluded from coverage.
D) Because it was unattached, that type of property was not covered by the HO-3.

Question 16

All of the following are available under one of the HO forms except:

A) personal liability insurance
B) theft insurance
C) medical payments coverage for others
D) automobile physical damage coverage

Question 17

The value of a home is $50,000, and the homeowner policy covering it contains an 80% coinsurance clause. Assume the home is insured for $30,000 and a $12,000 loss occurs. How much will the insured recover? (Ignore the ACV calculation and assume there is no fraud or other unusual circumstances surrounding the loss.)

A) $12,000
B) $9,000
C) $16,000
D) The answer cannot be determined by the facts given.

Question 18

Which of the following are not a part of the conditions at the end of the HO-3 policy typically cover?

A) Additional coverages
B) Activities that the insured must perform to assist the insurer
C) Set limits on the insurer's total liability
D) Issues surrounding cancellation and nonrenewal of the policy

Question 19

All the following are provisions in the HO-3 contract that can decrease amounts payable by the insurance company except:

A) deductibles
B) coinsurance/replacement cost provisions
C) special limits on certain types of property
D) mortgage clause

Question 20

Joe owns a house on which he carries a $400,000 HO-3 policy. The replacement cost of the house is $600,000. A fire loss occurs that has a replacement cost of $10,000. How much can Joe collect under his HO-3 policy?

A) $15,462
B) $10,000
C) $30,000
D) $8,333

Question 21

Mary's house is burglarized and $22,000 in jewelry is stolen. What is the maximum amount her HO-3 policy will pay for this loss?

A) $12,000
B) $9,600
C) $2,500
D) $1,500

Question 22

Which of the following is not covered by the HO-3 Form?

A) Additional living expense and rental value
B) Death (loss) of domestic animals
C) Personal liability defense costs
D) Loss of trees, shrubs and other plants

Question 23

In homeowner's insurance, coinsurance is:

A) an agreement between two or more insurance companies to jointly cover a large risk
B) a contractual agreement to make the insured bear a portion (usually small) of every loss
C) a contractual agreement to prevent over-insurance
D) a contractual agreement that penalizes the insured when under-insured

Question 24

With respect to the HO dwelling coverage, select the most accurate statement.

A) If the amount of insurance carried divided by 80% of the replacement cost equals 1 or greater, the company will pay the replacement cost minus the deductible, but no more than the policy limit.
B) If the amount of insurance carried divided by 80% of the replacement cost equals 1 or greater, the company will pay replacement cost minus the deductible.
C) If the amount of insurance divided by 80% of the replacement cost equals 1 or greater, the company will multiply that result by the loss, subtract the deductible, then pay that amount.
D) The insurer must only pay actual cash value for any loss unless the insured has insurance equal to 100% of the replacement cost of the property.

Question 25

Alberto has an HO-3 contract with $100,000 of Liability Coverage. He is ordered by a judge to pay his neighbor $162,000 because of bodily injuries the neighbor suffered while he and Alberto were fishing in Alberto's old, undeclared 35 horse-power outboard motor boat. How will the contract respond?

A) Nothing is paid because liability arising out of this boat is excluded.
B) $61,500 is paid because of the deductible.
C) $62,000 is paid to the injured party.
D) $100,000 is paid to the neighbor.

Question 26

Which of the following perils is not covered by the HO-3 form?

A) Windstorm or hail
B) Riot or civil commotion
C) Sudden and accidental smoke damage
D) Volcanic earthquakes

Question 27

Why is there an "ordinance-or-law exclusion" in a typical HO-3 policy?

A) Because it is too costly to include
B) Because there is a federal insurance policy that covers this aspect
C) Because it is better insured under another insurance policy
D) There is no such exclusion.

Question 28

All of the following are available under the HO-3 contract except:

A) personal liability insurance
B) theft insurance
C) medical payments coverage for others
D) automobile comprehensive coverage

Question 29

Ira is a homeowner covered by an HO-3 policy. He lives with his wife and three children, ages 14, 16, and 19. Who in the household is not covered for personal liability by the HO policy?

A) Both the 16 and 19-year old children
B) Any of the children
C) The 19-year-old child
D) All of the persons listed are covered.

Question 30

Britney and Kevin were painting their backyard fence with a spray gun. A strong gust of wind blew paint on the neighbor's house. The neighbor sued them for all the clean-up costs. Which of the following is true about Britney and Kevin's HO policy?

A) This liability is covered by their HO policy.
B) This liability is not covered by their HO policy because the damage occurred off their premises.
C) This liability is not covered by their HO policy because the damages are not bodily injuries.
D) This type of incident is specifically excluded by the HO policy.

Question 31

Which of the following perils is not covered by the HO-3 form?

A) Aircraft & vehicles
B) Flood
C) Theft
D) Falling objects

Question 32

Which of the following is not an available endorsement to the HO policy?

A) Professional Liability Coverage Endorsement
B) Home Day Care Coverage Endorsement
C) Business Pursuits Endorsement
D) Scheduled Personal Property Endorsement

Question 33

You have an HO policy with the following limits: A = $50,000 (dwelling)
B = $5,000 (other structures)
C = $25,000 (personal property).
A tornado strikes your property. You lose your house, which is worth $40,000 at the time of the loss. You also lose an unattached shed worth $8,000, and personal property worth $30,000. You will collect:

A) $78,000
B) $70,000
C) $58,000
D) none of the above

Question 34

Ira is a homeowner covered by an HO-3 policy. He lives with his wife and three teenage children, plus one teenage foster child. Who in the household is not covered for personal liability by the HO policy?

A) Ira's foster child
B) Ira's wife
C) Any of the Ira's three teenage children
D) All of the persons listed above are covered.

Question 35

Which of the following is excluded by the HO-3 Form?

A) Additional living expense and rental value
B) Debris removal
C) Loss of trees, shrubs and other plants
D) Loss caused by ordinance or law

Question 36

The issue of who is a resident of the household, and thus an "insured" under the HO policy, has been litigated many times. Which of the following is a key factor that most courts consider when determining residence?

A) The educational status of the resident in question
B) Occupation of the resident in question
C) The intent of the individual
D) None of the above

Question 37

No consequential or loss of use losses are covered by the standard homeowners' policy.

Question 38

Beverly has an HO-3 contract with a $100,000 per occurrence limit on the Liability coverage. She rents out her basement to a college student, and the student's personal property is damaged by Beverly's negligence. The student sues her for $3,000. How much will the HO policy pay for this loss?

A) $0 is paid because this liability is excluded.
B) $0 is paid due to the care, custody and control exclusion.
C) $3,000 is paid because the loss is not excluded.
D) $3,000 is paid under the property section and not the legal liability section.

Question 39

Which of the following is not exclusion in a typical HO-3 policy?

A) Catastrophic events
B) Coverage where another policy is specifically designed to provide coverage
C) Failure of power or another utility
D) All of the above are a typical exclusion in a HO-3 policy.

Question 40

Mary's house catches on fire. $9,000 of her jewelry is destroyed by the fire. What is the maximum amount her HO-3 policy will pay for this loss?

A) $12,000
B) $9,600
C) $2,500
D) $1,500

Question 41

One purpose of exclusions in the HO policy is to eliminate losses due to moral hazard.

Question 42

The HO policy's Mortgage Clause continues to protect the lender (mortgagee) even if the insured/homeowner has committed fraud against the insurer.

Question 43

A coinsurance requirement, if not met, serves to limit the recovery of loss under the policy.

Question 44

Explain why there is a coinsurance clause applied to the building structures. How does it work?

Question 45

Why is there a "special limits of liability" section in the personal property section of the HO-3 contract?

Question 46

The term "named insured" includes spouses and children (if any are living at home) in the homeowners (HO) insurance policy.

Question 47

In fire insurance, the purpose of coinsurance clauses is to prevent over-insurance.

Question 48

The HO policy provides professional liability insurance coverage to the insured, provided the work leading to the lawsuit is done at home.

Question 49

What is meant by "Medical Payments to others"? Why does the coverage exist?

Question 50

Adding coverage to the HO contract by endorsement increases the insured's premium.

Question 51

What is the contractual significance of having high limits of legal liability coverage in the HO contract?

Question 52

The liability coverage of the HO policy commits the insurer to defend lawsuits brought against the homeowner, even if the lawsuits are frivolous and groundless.

Question 53

Explain the concept of concurrent causation as it applies to collapse.

Question 54

Grave markers are usually covered by HO policies.

Question 55

Falling objects is a named peril for coverage of personal property in a HO-3 policy.