United States
Hong KongProperty and Casualty Insurance
Homeowners policies typically require insurance to at least 80 per cent of replacement cost; below that, partial losses are settled by a formula that reduces the payment.
- The personal auto policy and an umbrella cover the liability side.
On this page7 sections
One formula carries most of the questions in this topic. Learn it and the rest is recognition.
The coinsurance clause
Homeowners policies generally require the dwelling to be insured for at least 80 per cent of replacement cost.
Meet it, and a partial loss is paid in full up to the limit. Fall short, and the payment is reduced by the ratio of what you carried to what you should have carried.
The formula: the amount of insurance carried, divided by the amount required, multiplied by the loss, less the deductible. The payment is never more than the policy limit and never more than the actual loss.
On a total loss the policy limit is what you get, and the shortfall shows up as an uninsured gap rather than as a formula. The formula is for partial losses, which is what questions describe.
The homeowners forms
Named perils and open perils
| Coverage grant | Starting question | Limit to remember |
|---|---|---|
| Named perils | Is the cause of loss specifically listed in the policy? | An unlisted cause generally falls outside the grant. |
| Open perils | Is there direct physical loss, and does an exclusion or limit apply? | Open perils does not mean every cause, item, or amount is covered. |
With named-perils coverage, the insured generally has to connect the loss to a covered cause. With open-perils coverage, the grant is broader, but exclusions, conditions, limits, and endorsements still decide the claim. The HO-3 form commonly uses open-perils coverage for the dwelling and named perils for personal property; HO-5 commonly extends open-perils treatment to both. Read the actual contract rather than relying on the form label, and remember that the precise burden of proof can depend on the wording and governing state law.
| Form | For |
|---|---|
| HO-2 | Broad named perils |
| HO-3 | The common owner-occupier form - open perils on the dwelling, named perils on contents |
| HO-4 | Renters - contents and liability, no dwelling |
| HO-5 | Comprehensive - open perils on both dwelling and contents |
| HO-6 | Condominium owners |
| HO-8 | Older homes, on a modified basis |
HO-3 is the default and HO-4 is the renter. Those two answer most questions asking which form suits a described client.
Sections I and II
Section I is property - dwelling, other structures, personal property, loss of use. Section II is liability - personal liability and medical payments to others.
Knowing which section a described loss falls under is a straightforward mark, and it appears.
What is excluded
Flood and earthquake, which need separate policies or endorsements. Intentional acts. Business activities in the home, beyond a small limit. War. Nuclear hazard. Wear and tear.
Flood is the exclusion that matters most in practice and the one clients most often assume is covered.
The personal auto policy
Liability, medical payments, uninsured and underinsured motorist, and physical damage split into collision and other than collision.
Limits are commonly expressed as three numbers - per person bodily injury, per accident bodily injury, and property damage. Questions give a loss and the limits and ask what is paid.
Umbrella
Excess liability above the underlying homeowners and auto limits, and broader in some respects. It requires specified underlying limits to be maintained.
It is cheap relative to the cover, and it belongs in any plan where the client has assets worth pursuing, a pool, a trampoline, teenage drivers, rental property, or a public profile. That list is what questions describe.
Dollar limits here are indexed annually and several were changed by recent legislation. Confirm the current figure before relying on it, and expect the exam to test the rule rather than the number.
Common questions
How does the coinsurance clause work?
Insure to at least 80 per cent of replacement cost and partial losses are paid in full. Fall short and the payment is the insurance carried divided by the amount required, times the loss, less the deductible.
Does coinsurance apply to a total loss?
No. On a total loss you receive the policy limit, and the shortfall appears as an uninsured gap. The formula applies to partial losses, which is what questions describe.
Which homeowners form is standard?
HO-3 for owner-occupiers - open perils on the dwelling and named perils on contents. HO-4 is the renters form and HO-6 covers condominium owners.
Is flood covered by a homeowners policy?
No. Flood and earthquake are excluded and require separate policies or endorsements. Flood is the exclusion clients most often assume is covered.
Who needs an umbrella policy?
Anyone with assets worth pursuing, and particularly clients with pools, trampolines, teenage drivers, rental property or a public profile. It is inexpensive relative to the cover it provides.