The homeowners policy is a package: Section I insures the home and belongings, and Section II provides personal liability and medical payments to others, all in one contract for people who live in the home. Exam questions lean heavily on the ISO 2011 homeowners program, so this guide quotes its figures (HO 00 03 05 11 unless another form is named). Insurers may use their own forms, and every state attaches amendatory endorsements that change some conditions, especially cancellation and nonrenewal.

Who is insured and where

• Eligibility: the residence premises is a one-family dwelling, or a two- to four-family dwelling where the named insured lives in one unit, shown in the declarations. Owner-occupied homes use HO-2, HO-3, HO-5 or HO-8; tenants use HO-4; condo and co-op unit owners use HO-6. Rental dwellings the insured does not live in go on a dwelling policy.
• Insureds: the named insured and spouse, resident relatives, and other residents under 21 in the care of one of them. A full-time student who lived there before leaving for school remains an insured if a relative under 24 (or under 21 in an insured's care).
• Insured location includes the residence premises, other residences shown or acquired, places the insured is temporarily staying, vacant land other than farm land, land where the insured's home is being built, and cemetery plots.
• Business means a trade or occupation, but not an activity that paid no insured more than $2,000 in the 12 months before the policy period, volunteer work, or home day care for a relative or as a swap of services.

The forms

• HO-4: no Coverage A; a tenant's building additions and alterations are covered up to 10% of Coverage C as additional insurance.
• HO-6: Coverage A covers the owner's alterations, appliances, fixtures and improvements in the unit and property the association agreement makes the owner insure. HO 17 32 changes Coverage A to open perils.
• HO-5 still settles personal property at ACV unless endorsed, and its jewelry, firearms and silverware limits apply to "theft, misplacing or losing." Breakage of glassware and similar fragile items is covered only by listed perils.
• HO-8 pays repair costs using common, functionally equivalent materials; if the home is not repaired it pays the least of the limit, the market value of the building (not the land) or ACV. It lists only basic perils (no falling objects, for example), and theft away from the residence premises is not covered.

Section I property coverages

• Coverage A Dwelling: the house, attached structures, and materials on or next to the premises for building or repairing it.
• Coverage B Other Structures: structures set apart by clear space (detached garage, fence, shed). The limit is 10% of Coverage A unless increased, and it does not reduce Coverage A. Not covered: structures used for business, used to store business property (with an exception), or rented to someone who is not a tenant of the dwelling unless used only as a private garage.
• Coverage C Personal Property: property owned or used by an insured anywhere in the world. At the insured's request it can cover property of guests and residence employees. Property usually kept at another residence or in a self-storage facility is limited to the greater of 10% of Coverage C or $1,000 (a newly acquired principal residence is exempt for 30 days). Not covered: animals, most motor vehicles, aircraft, property of unrelated roomers and boarders, and articles separately described and insured elsewhere.
• Coverage D Loss of Use: additional living expense (the increase in living costs to keep the household's normal standard of living), fair rental value of a rented part (less expenses that stop), and civil authority prohibited use for up to 2 weeks. ALE runs for the shortest time needed to repair or settle elsewhere and is not cut off by policy expiration.
• The Coverage C and D limits are shown in the declarations; the form itself does not set them as a percentage of Coverage A.

Coverage C special limits (HO-3)

The jewelry, firearms and silverware limits apply only to theft: a ring destroyed in a fire is paid up to the Coverage C limit.

Additional coverages (HO-3)

• Debris removal: inside the limit, plus an extra 5% of the limit if needed; removal of fallen trees up to $1,000 per loss, $500 per tree when they damage a covered structure or block a driveway or ramp.
• Reasonable repairs to protect property from further damage.
• Trees, shrubs and plants: up to 5% of Coverage A, $500 per item, for fire, lightning, explosion, riot, aircraft, vehicles not owned or operated by a resident, vandalism and theft. Windstorm is not covered.
• Fire department service charge: up to $500, no deductible.
• Property removed from danger: covered against any direct loss for 30 days.
• Credit card, fund transfer card, forgery and counterfeit money: up to $500, no deductible; not for use by a household resident or someone entrusted with the card.
• Loss assessment: up to $1,000 (not for earthquake or governmental assessments).
• Collapse: abrupt collapse from listed causes such as hidden decay, hidden insect damage or weight of rain on a roof; settling and cracking are not collapse.
• Glass or safety glazing breakage.
• Landlord's furnishings: up to $2,500 per rented apartment, Coverage C perils other than theft.
• Ordinance or law: up to 10% of Coverage A as additional insurance (more with HO 04 77).
• Grave markers: up to $5,000.

Section I perils

• Coverage C named perils (HO-2, HO-3, HO-4, HO-6): fire or lightning; windstorm or hail; explosion; riot or civil commotion; aircraft; vehicles; smoke; vandalism or malicious mischief; theft; falling objects; weight of ice, snow or sleet; accidental discharge or overflow of water or steam; sudden and accidental tearing apart of heating, cooling or water systems; freezing; artificially generated electrical current; volcanic eruption.
• Peril details: windstorm covers watercraft and trailers only inside a fully enclosed building; falling objects inside the house only if the object first damages the roof or an outside wall; electrical current does not cover electronic components of appliances and computers; theft does not cover theft by an insured, theft from a home under construction, or off-premises theft of watercraft, trailers and campers. A student's property at school is covered for theft if the student was there within the last 90 days.
• HO-3 open perils on A and B exclude: freezing of plumbing unless heat was maintained or the system shut off and drained; vandalism and glass breakage after more than 60 consecutive days of vacancy; theft of construction materials until the home is finished and occupied; mold, fungus or wet rot unless hidden in walls, ceilings or floors and caused by accidental discharge of water; wear and tear, deterioration, mechanical breakdown, rust, settling; birds, rodents, insects and animals owned or kept by an insured (the insured's dog chewing the door is excluded). A sudden burst pipe is covered.

Section I exclusions (all forms)

These apply regardless of any other cause contributing concurrently or in sequence:

• Ordinance or law (beyond the additional coverage).
• Earth movement, but ensuing fire, explosion or theft is covered.
• Water: flood and surface water, backup through sewers or drains, overflow from a sump, and water below the surface. Sudden discharge from plumbing and rain through a wind-made opening are covered. Backup coverage is added by endorsement (HO 04 95); flood needs the NFIP or a private flood policy.
• Power failure off the residence premises; neglect; war; nuclear hazard (resulting direct fire covered); governmental action (except destruction to stop a fire from spreading); intentional loss, which in the 2011 form leaves no insured covered, even one who took no part.

Loss settlement

• Buildings (A and B): if the limit is at least 80% of full replacement cost at the time of loss, the insurer pays replacement cost without depreciation, up to the limit. If less, it pays the greater of ACV or (limit ÷ 80% of replacement cost) × replacement cost of the damage. Example: $400,000 replacement cost, $240,000 limit, $40,000 roof loss with $28,000 ACV: $240,000 ÷ $320,000 × $40,000 = $30,000, which beats ACV.
• Foundations below the basement floor and underground pipes, flues, wiring and drains are left out of the 80% calculation.
• Until repairs are finished the insurer pays only ACV, unless the loss is under 5% of the limit and under $2,500. The insured may take ACV and still claim replacement cost by notifying the insurer within 180 days.
• Personal property, carpeting, appliances, awnings, outdoor antennas and equipment, non-building structures and grave markers are paid at ACV. HO 04 90 switches personal property to replacement cost, except antiques, fine arts, collectibles and similar items that cannot be replaced.
• Other conditions: only the highest deductible applies when two apply; sworn proof of loss within 60 days of the insurer's request; examinations under oath outside other insureds' presence; appraisal; suit within 2 years; insurer's option to repair within 30 days of proof of loss; payment within 60 days of agreement, judgment or appraisal award; no abandonment; volcanic eruptions within 72 hours are one eruption; mortgagee protected with 10 days' notice of cancellation or nonrenewal.

Section II liability coverages

• Coverage E Personal Liability: damages an insured is legally obligated to pay for bodily injury or property damage caused by an occurrence, plus defense even of groundless suits. The limit applies per occurrence, regardless of the number of insureds, claims or people injured.
• Coverage F Medical Payments to Others: necessary medical expenses incurred or medically ascertained within 3 years of an accident, regardless of fault, for people on an insured location with permission or injured away from it by an insured's activities, a residence employee at work, or an insured's animal. Never for the named insured or regular household residents (residence employees excepted). Limit is per person per accident.
• Additional coverages: claim expenses (defense, bond premiums, post-judgment interest, and lost earnings up to $250 a day) paid in addition to the limit; first aid to others; damage to property of others up to $1,000 per occurrence at replacement cost regardless of fault (not for damage intentionally caused by an insured 13 or older); loss assessment up to $1,000.

Section II exclusions

• Motor vehicles, with exceptions such as vehicles in dead storage, golf carts at golf facilities, vehicles that service the residence, and recreational vehicles not owned by an insured (or owned and used on an insured location).
• Watercraft: owned sailboats 26 feet or longer, owned boats with inboard or inboard-outdrive engines (including jet-drive personal watercraft), and owned outboard motors over 25 total horsepower (unless acquired during the policy period or declared or reported within 45 days). HO 24 75 broadens watercraft coverage.
• Aircraft and hovercraft.
• Expected or intended injury; business (except occasional rental of the residence, renting part of it with no more than two roomers or boarders, and insureds under 21 in part-time self-employment with no employees); professional services; premises owned or rented by an insured that are not insured locations; communicable disease; sexual molestation; controlled substances; war.
• Coverage E only: contractual liability (except written contracts relating to an insured location or assumed before the occurrence); property owned by an insured; property rented to or in the care of an insured except damage by fire, smoke or explosion; bodily injury to an insured; injury to a person eligible for workers compensation the insured must provide (such as a live-in nanny where state law requires it).
• Section II is excess over other collectible insurance, except insurance written to be excess over it (an umbrella).

Common endorsements

• Scheduled Personal Property (HO 04 61): open-perils, worldwide, no deductible coverage on listed valuables. Fine arts are paid at the scheduled (agreed) amount. Newly acquired jewelry, furs, cameras and musical instruments of a scheduled class: lesser of 25% of that class or $10,000, reported within 30 days (fine arts 90 days).
• Personal Property Replacement Cost (HO 04 90).
• Earthquake (HO 04 54): percentage deductible applied separately to A, B and C; quakes within 72 hours are one; flood or tsunami caused by an earthquake is still excluded; limits are not increased.
• Water backup and sump discharge (HO 04 95), Refrigerated property (HO 04 98), Limited fungi, wet or dry rot, or bacteria (HO 04 26/04 27), Ordinance or law increased amount (HO 04 77), Identity fraud expense (HO 04 55), Inflation guard.
• Liability: Personal Injury (HO 24 82) for libel, slander, false arrest and invasion of privacy; Business Pursuits (HO 24 71) for an insured's work as an employee; Home Day Care (HO 04 97); Permitted Incidental Occupancies (HO 04 42); Watercraft (HO 24 75).

Cancellation (base form)

The insured may cancel any time. The insurer may cancel for nonpayment with 10 days' notice, for any reason during the first 60 days of a new policy with 10 days' notice, and afterward only for material misrepresentation or substantial change in risk with 30 days' notice. Nonrenewal needs 30 days' notice. Refunds are pro rata. State amendatory endorsements commonly change all of these. If the named insured dies, coverage continues for the legal representative and resident household members.

Common traps

• HO-3 = open perils on the house, named perils on contents. HO-5 = open perils on both. HO-4 has no Coverage A.
• Coverage B is 10% of A in addition to A.
• Jewelry, firearms and silverware limits are theft-only in the HO-3.
• Trees and shrubs: no windstorm coverage.
• Below 80% insurance to value: greater of ACV or the proportional replacement cost.
• Coverage F never pays the insured's own household. Coverage E excludes bodily injury to any insured.
• Sewer backup, flood and earthquake all need separate coverage.