18.3 Providing Unique Personal Coverages
Key Takeaways
Flood is excluded from homeowners policies; the National Flood Insurance Program (NFIP) offers residential building coverage up to $250,000 and contents up to $100,000, generally after a 30-day waiting period.
Earthquake coverage is added by endorsement or bought separately (for example, from the California Earthquake Authority), usually with a percentage deductible.
Dwelling policies (DP-1 basic, DP-2 broad, DP-3 special) insure dwellings that do not qualify for homeowners forms, such as rental properties, and do not include personal liability.
Scheduled personal property coverage insures valuables such as jewelry, fine arts, and collectibles for listed amounts on a broad basis, avoiding homeowners theft sublimits.
Watercraft, recreational vehicles, and mobile homes often need endorsements or separate policies because homeowners and personal auto forms limit or exclude them.
Providing Unique Personal Coverages
Quick Answer: Standard homeowners and personal auto policies leave important gaps. Flood is excluded, so owners buy NFIP or private flood coverage. Earthquake needs an endorsement or a separate policy. Rental and non-owner-occupied dwellings use dwelling policies (DP-1, DP-2, DP-3). Valuables need scheduled personal property coverage to avoid theft sublimits. Watercraft, recreational vehicles, and mobile homes often need their own endorsements or policies. Residual market programs such as FAIR plans serve properties the voluntary market will not insure.
Why These Coverages Matter
A family's largest uninsured losses often come from what the homeowners policy does not cover: a flood, an earthquake, stolen jewelry, or a boating accident. Advising personal lines customers means spotting these exposures before a loss.
Flood Insurance
- Homeowners policies exclude flood, surface water, and storm surge.
- The National Flood Insurance Program (NFIP), managed by FEMA, offers residential coverage up to $250,000 on the building and $100,000 on contents.
- There is generally a 30-day waiting period before a new NFIP policy takes effect, with exceptions such as a policy bought in connection with a mortgage transaction.
- NFIP includes Increased Cost of Compliance coverage (up to $30,000) to help bring a substantially damaged building up to floodplain rules.
- Lenders require flood coverage for federally backed mortgages on buildings in special flood hazard areas.
- Private flood policies may offer higher limits, replacement cost on contents, or additional living expenses.
Earthquake Insurance
Homeowners policies exclude earth movement, although ensuing fire and explosion are covered. Earthquake coverage is added by endorsement or bought as a separate policy, such as from the California Earthquake Authority in California. Earthquake policies typically carry a percentage deductible, calculated as a percentage of the dwelling limit. The deductible can be large relative to typical losses.
Dwelling Policies for Non-Homeowners Situations
| Form | Perils | Typical use |
|---|---|---|
| DP-1 (Basic) | Limited named perils | Low-value or vacant dwellings |
| DP-2 (Broad) | Broad named perils | Rental dwellings |
| DP-3 (Special) | Open perils on the dwelling | Higher-quality rental and seasonal homes |
Dwelling policies insure one- to four-family dwellings that do not qualify for homeowners forms, such as landlord-owned rentals or homes under renovation. They do not include personal liability. Owners add liability through an endorsement or a separate personal liability policy.
Scheduled Personal Property and Personal Articles
Homeowners policies limit certain property, such as a $1,500 theft limit on jewelry and furs in the ISO 2011 homeowners forms. A scheduled personal property endorsement or a personal articles floater:
- Lists each item or class (jewelry, furs, fine arts, cameras, musical instruments, silverware, collectibles) with a stated amount
- Covers on a broad, open-perils basis, including mysterious disappearance for many classes
- Often requires appraisals and carries no deductible for scheduled items
- Values fine arts on an agreed basis in many forms
Watercraft
Homeowners policies provide only limited physical damage coverage for small boats (a $1,500 limit in the ISO 2011 forms) and exclude liability for larger or more powerful boats. Options:
- Watercraft endorsement to the homeowners policy for eligible small boats
- Boatowners or yacht policies for physical damage, liability, medical payments, and uninsured boaters. Yacht policies add navigation limits, crew coverage, and marine-specific provisions.
Recreational Vehicles and Motorcycles
The personal auto policy is designed for private passenger autos, pickups, and vans. Motorcycles, motor homes, golf carts, and all-terrain vehicles are usually handled through a miscellaneous type vehicle endorsement to the personal auto policy or through specialty policies. Off-road vehicles may also be covered in limited ways under the homeowners policy, for example when used on the insured location.
Mobile and Manufactured Homes
Manufactured homes can be insured through a mobilehome endorsement to a homeowners form or through specialty policies. Special provisions address transportation, tie-downs, and valuation.
Residual Markets: FAIR Plans
FAIR (Fair Access to Insurance Requirements) plans make basic property insurance available where the voluntary market will not write it, often because of catastrophe exposure or neighborhood conditions. Coverage is usually more limited than a homeowners policy. Buyers may pair it with a difference in conditions policy for other perils and liability.
Worked Scenario: A Coastal Family
A family owns a home in a coastal special flood hazard area, owns a $40,000 ski boat, owns $60,000 in jewelry, and rents out a second house.
- NFIP building and contents at the maximums ($250,000 and $100,000), plus excess or private flood if the home's value exceeds the NFIP limits
- Boatowners policy for the ski boat's physical damage and liability
- Scheduled personal property endorsement listing the jewelry at appraised values
- DP-3 on the rental house, plus personal liability coverage for landlord exposure
- Personal umbrella over the home, auto, watercraft, and rental liability
Common Traps
- Assuming homeowners covers flood: Flood, surface water, and storm surge are excluded.
- Forgetting the NFIP waiting period: Coverage generally starts 30 days after purchase, so buy before storm season.
- Leaving valuables unscheduled: Theft sublimits apply to jewelry, firearms, and silverware.
- Insuring a rental on a homeowners form: Non-owner-occupied dwellings usually belong on dwelling forms, with liability added separately.
What are the maximum NFIP limits for a single-family residential building and its contents?
$250,000 building and $100,000 contents
$100,000 building and $50,000 contents
$500,000 building and $250,000 contents
No maximum; limits equal replacement cost
An investor owns a rental house and wants property coverage for it. Why would a dwelling policy (such as DP-3) typically be used instead of a homeowners form?
Dwelling policies always include broader liability coverage than homeowners forms
Homeowners forms cover only condominiums
Homeowners forms are designed for owner-occupied residences, while dwelling policies insure dwellings that do not qualify, such as rentals
Dwelling policies cover flood automatically
A homeowner's $15,000 diamond ring is stolen. The home is insured under an unendorsed ISO HO-3. Which statement is correct?
The full $15,000 is paid under Coverage C
Payment is limited by the special theft limit for jewelry; a scheduled personal property endorsement would have covered the ring for its listed value
Jewelry is excluded from homeowners coverage
The ring is covered under Coverage A
Sections you finish are checked off in the contents.