The Personal Lines exam covers insurance for individuals and families: homes, belongings, cars and personal liability. Before the homeowners and auto policies make sense you need the shared vocabulary: how a policy is organized, how property losses are valued and settled, the conditions in every personal property form, and the negligence law behind liability claims. Form references are to the ISO homeowners form (HO 00 03 05 11) and the ISO Personal Auto Policy (PP 00 01 09 18); dwelling forms use nearly identical conditions. Insurers and states may amend these forms.

Risk vocabulary

• Pure risk (loss or no loss) is insurable; speculative risk (possible gain) is not.
• A peril is a cause of loss (windstorm). A hazard increases the chance or size of loss (a dead tree over the roof). Hazards are physical, moral (dishonesty) or morale (carelessness because you are insured).
• Handling risk: avoid it, retain it (a deductible is retention), reduce it (smoke detectors, deadbolts), transfer it (insurance) or share it.
• A catastrophe is one event producing an unusually large number or value of losses, such as a hurricane.

Parts of a policy (DICE)

• Declarations: named insured, address, coverages, limits, deductible, premium.
• Insuring agreement: the insurer's promise to pay.
• Conditions: rules and duties for both parties.
• Exclusions: what is not covered.
• Plus definitions (words in quotation marks have defined meanings) and endorsements that add, delete or change coverage.
• A binder is temporary evidence of coverage until the policy is issued.

Property principles

• Insurable interest: you must stand to lose financially, and the HO and DP Insurable Interest condition pays an insured no more than its interest at the time of loss.
• Indemnity: restore, do not enrich.
• Real vs. personal property: a built-in dishwasher is part of the dwelling; a free-standing refrigerator is personal property.
• Direct loss is the damage itself; indirect (consequential) loss follows it. Time element coverage, such as homeowners loss of use, is measured by how long restoration takes.
• Named perils forms cover only listed perils and the insured must prove one applied. Open perils forms cover all direct physical loss not excluded, and the insurer must prove an exclusion. In HO 00 03 the dwelling and other structures are open perils and personal property is named perils.
• Proximate cause starts the unbroken chain of events. Concurrent causation is a loss with one covered and one excluded cause.
• A floater covers movable property wherever it goes.

Valuation

• ACV = replacement cost minus depreciation. A $12,000 roof halfway through a 20-year life has an ACV of $6,000. Stolen property costing $2,000 new, 50% depreciated, with a $250 deductible: $1,000 − $250 = $750.
• Replacement cost = like kind and quality, no depreciation deduction.
• Agreed value and valued policies pay an amount fixed in advance, typical for collectibles and fine art.
• Blanket coverage puts one limit over many items; specific coverage gives each item its own limit. A sublimit caps a category (money, jewelry theft) inside the limit.
• An inflation guard raises the limit over time as building costs rise.

Insuring to value: coinsurance vs. the homeowners 80% rule

Commercial property forms use a coinsurance clause: (carried ÷ required) × loss, less the deductible. A $200,000 building with 80% coinsurance and a $120,000 limit gets 0.75 × a $40,000 loss = $30,000. Meeting the requirement means partial losses are paid in full, less the deductible, up to the limit.

Homeowners forms have no coinsurance clause. HO 00 03 instead pays dwelling losses at full replacement cost only if Coverage A is at least 80% of the home's full replacement cost at the time of loss. If it is less, the insurer pays the greater of ACV or the proportion (Coverage A ÷ 80% of replacement cost) of the replacement cost. Expect questions that test this difference.

Conditions in personal property forms

• Duties after loss: prompt notice, notify police of theft, protect property from further damage (reasonable emergency repair costs are covered), inventory, show the damage, and send a signed, sworn proof of loss within 60 days after the insurer asks.
• Deductible: if two or more deductibles apply to one loss, only the highest applies.
• Appraisal for disputes over the amount: each side names an appraiser within 20 days of a written request, the appraisers pick an umpire (a judge picks one if they cannot agree within 15 days), any two agree; each side pays its own appraiser and they split the umpire.
• Our option: the insurer may repair or replace with like kind and quality if it gives written notice within 30 days after the proof of loss.
• Loss payment: within 60 days after the insurer receives the proof of loss and the amount is agreed, set by judgment or by an appraisal award.
• Suit against us: within 2 years after the date of loss.
• Pair or set: pay the drop in value. A $2,000 pair of earrings with one stolen and the other worth $600 alone: $1,400.
• Recovered property: the insured may take it back with an adjusted payment or let the insurer keep it. No abandonment to the insurer; the insurer may keep salvage it has paid for.
• Other insurance: pro rata by limits ($100,000 and $200,000 policies on a $30,000 loss: $10,000 and $20,000). HO 00 03 is excess over a home warranty or service agreement. An escape clause says the policy pays nothing if other insurance applies.
• Mortgage clause: the lender is protected even if the insured's claim is denied for fraud, provided the lender meets its own duties; at least 10 days' notice to the mortgagee before cancellation or nonrenewal. A loss payable clause protects a lienholder on personal property.
• Concealment or fraud: under HO Section I, if any insured intentionally conceals or misrepresents a material fact, no insured has property coverage.
• Subrogation: the insurer may recover from the party at fault; HO and DP forms let the insured waive recovery rights in writing before a loss.
• Liberalization, assignment only with the insurer's written consent, and no benefit to bailee apply as in all ISO property forms.

Standard property exclusions

Earth movement, flood and other water damage, power failure off the premises (food spoiled by an outage at a distant substation is not covered), neglect (failing to protect property at and after a loss), war, nuclear hazard (except resulting direct fire), governmental action (except destruction ordered to stop a fire from spreading), wear and tear, inherent vice, and pollutants.

Cancellation and premium

• Cancellation ends coverage mid-term; nonrenewal declines to continue at expiration. State law sets most notice periods.
• HO and DP forms refund unearned premium pro rata whoever cancels: cancel a $1,000 policy after 20% of the term and $800 comes back.
• A short-rate refund (less than pro rata) appears in some commercial forms when the insured cancels. A flat cancellation dates back to inception with all premium returned.
• Pure premium (loss cost) covers expected losses; expenses and profit are added to get the rate. The exposure unit is what the rate is charged on, such as each car.

Liability basics

Liability coverage pays damages the insured is legally obligated to pay because of bodily injury (injury, sickness or disease, including resulting death) or property damage (physical injury to tangible property, including loss of use) caused by an occurrence (an accident, including continuous or repeated exposure to the same harmful conditions).

• Negligence: failing to use the care a reasonable person would. Elements: duty, breach, proximate cause, damages. Negligence per se is breaking a safety statute; res ipsa loquitur infers negligence from the accident itself.
• Strict (absolute) liability applies without fault, such as keeping a wild animal. Vicarious liability makes one person answer for another.
• Attractive nuisance: an unfenced pool increases liability to children drawn to it. A hold harmless agreement shifts liability by contract. An additional insured gets some protection under someone else's policy, usually by endorsement.
• Defenses: contributory negligence (any fault bars recovery), comparative negligence (recovery reduced by fault), last clear chance, assumption of risk, the statute of limitations. Each state sets its own rule.
• Damages: special (measurable), general (pain and suffering), punitive (punishment), nominal (token).
• Personal injury means offenses like libel, slander, false arrest and invasion of privacy; the base homeowners form does not cover it (an endorsement can add it).

Limits and defense

• Limits may be split (per person / per accident / property damage), combined single (one amount, as in HO Coverage E per occurrence) or aggregate (all claims in a period).
• In the HO and PAP forms, defense costs and supplementary payments are paid in addition to the limit, and the duty to settle or defend ends when the limit is exhausted by judgments or settlements. Where defense is "within limits," defense costs reduce what is left for damages.
• Primary coverage pays first; excess pays after other insurance is used up.
• Occurrence policies cover injury during the policy period whenever the claim comes in; claims-made policies cover claims made during the period after the retroactive date, and a tail (extended reporting period) allows later reporting.

Common traps

• Homeowners settle dwelling losses with the 80% replacement cost rule, not a coinsurance clause.
• HO and DP refunds are pro rata even when the insured cancels.
• Open perils: the insurer proves the exclusion. Named perils: the insured proves the peril.
• Power failure off premises is excluded; neglect means failing to protect property after a loss.
• Comparative vs. contributory negligence is a state choice.