Key Takeaways
- Homeowners insurance is a PACKAGE POLICY combining property coverage (Section I) and liability coverage (Section II) in one contract
- HO-3 (Special Form) is the MOST COMMON homeowners policy — covering approximately 80% of owner-occupied homes in the U.S.
- Homeowners policies require OWNER-OCCUPANCY — the named insured must own and live in the property as their primary residence
- Eligible properties include 1-4 family dwellings — properties with more than 4 units require commercial coverage
- The average U.S. homeowners insurance premium was $2,377 in 2024, with significant variation by state and coverage levels
Homeowners Policy Overview
Homeowners insurance is one of the most important and heavily tested topics on the P&C exam. Understanding its structure and components is essential for both the exam and real-world application.
What Is a Homeowners Policy?
Definition: A homeowners policy is a package policy that combines property insurance and liability insurance into a single contract.
Key Concept: Package policy means you get multiple coverages bundled together — property protection AND liability protection — in one convenient policy.
The Two Sections of a Homeowners Policy
Every homeowners policy is divided into two main sections:
Section I: Property Coverages
Protects the insured's property from covered perils:
| Coverage | What It Protects |
|---|---|
| Coverage A | Dwelling (the house) |
| Coverage B | Other Structures (detached buildings) |
| Coverage C | Personal Property (contents) |
| Coverage D | Loss of Use (additional living expense) |
Section II: Liability Coverages
Protects the insured from lawsuits and claims:
| Coverage | What It Protects |
|---|---|
| Coverage E | Personal Liability |
| Coverage F | Medical Payments to Others |
Package Policy Concept
The genius of the homeowners policy is combining coverages that would otherwise require separate policies:
Without Package Policy:
- Property policy for the dwelling
- Property policy for contents
- Liability policy for personal liability
- Medical payments policy
With Package Policy:
- Single homeowners policy covers everything
Benefits:
- Lower total premium than separate policies
- Single deductible (often)
- Simplified claims process
- Coordinated coverage (no gaps)
Eligibility Requirements
Not every property qualifies for a homeowners policy. The basic requirements are:
1. Owner-Occupancy
- The named insured must own the property
- The named insured must occupy the property as their primary residence
- Cannot be used solely as a rental (dwelling policy instead)
2. Residential Use
- Must be used primarily as a residence
- Limited incidental business use allowed
- No commercial operations
3. Dwelling Type
- 1-4 family dwellings — Single-family homes, duplexes, triplexes, fourplexes
- Properties with 5+ units require commercial insurance
- Mobile homes require HO-7 (not on exam) or specific mobile home policy
4. Property Condition
- Must meet minimum underwriting standards
- Functional heating, plumbing, electrical systems
- Reasonable state of repair
Why Homeowners Insurance Matters
The financial stakes are significant:
- Average home value (2024): $420,000
- Average homeowners premium (2024): $2,377/year
- Most common claims:
- Wind and hail (34%)
- Water damage and freezing (29%)
- Fire and lightning (24%)
- Theft (5%)
- Liability (2%)
Key Differences: Homeowners vs. Dwelling Policies
| Feature | Homeowners Policy | Dwelling Policy |
|---|---|---|
| Owner-occupancy required | YES | NO |
| Liability coverage included | YES | NO |
| Medical payments included | YES | NO |
| Target market | Owner-occupants | Landlords, vacant |
| Most common form | HO-3 | DP-3 |
Exam Tip: If a question involves a landlord or non-owner-occupied property, the answer is usually a dwelling policy (DP form), not a homeowners policy (HO form).
A homeowners policy is considered a "package policy" because it:
Which of the following properties would NOT be eligible for a standard homeowners policy?
Coverage E in a homeowners policy provides:
4.2 Homeowners Policy Forms (HO-2 through HO-8)
Continue learning