4.2 Section I Coverages A-D and Additional Coverages

Section I Property Coverages

Section I insures the insured's property — both real property (structures) and personal property (contents) — plus the cost of living elsewhere after a loss. The four coverages are linked by percentages of Coverage A, so setting Coverage A correctly scales the rest.

Coverage A — Dwelling

Coverage A insures the dwelling on the residence premises, structures attached to it (such as an attached garage), building materials on the premises, and built-in fixtures and systems (wiring, plumbing, central air, built-in cabinets).

Coverage A does not insure:

• Land — it cannot be destroyed by a covered peril, so it is never insured.
• Detached structures (those are Coverage B).
• Personal property (Coverage C).

Critical distinction: Coverage A should equal replacement cost (the cost to rebuild at today's prices), not market value. A home may sell for $420,000 yet cost only $330,000 to rebuild, because market value includes land and location.

Coverage B — Other Structures

Coverage B insures detached structures: a detached garage, shed, fence, gazebo, or driveway. The standard limit is 10% of Coverage A, and it is additional insurance (it does not erode Coverage A).

Coverage B excludes any detached structure used for business or rented to others (other than as a private garage).

Coverage C — Personal Property

Coverage C insures the insured's contents anywhere in the world. The standard limit is 50% of Coverage A on HO-3 (often raised to 70-75% by endorsement) and it is written on a named-peril basis.

Special Limits of Liability (Sublimits)

Certain categories are capped no matter how high Coverage C is:

Exam alert: A $12,000 diamond ring stolen from the home is paid only $1,500. Full coverage requires a Scheduled Personal Property endorsement.

Worldwide and Off-Premises Coverage

Coverage C follows the insured worldwide, but property usually situated away from the residence (a student's dorm belongings, for example) is limited to 10% of Coverage C, subject to a $1,000 minimum. A laptop temporarily away on a trip gets the full limit.

Coverage D — Loss of Use

Coverage D pays when a covered Section I loss makes the home uninhabitable; on HO-3 the limit is commonly 30% of Coverage A. It has two parts:

• Additional Living Expense (ALE): the increase over normal living costs to maintain the household's standard of living.
• Fair Rental Value: lost rental income if part of the home was rented, less expenses that cease.

Worked ALE Example

ALE pays only the extra cost, not the total cost:

• Normal monthly housing cost: $2,000
• Temporary rental plus added commuting: $3,200
• ALE paid = $3,200 - $2,000 = $1,200/month

Additional Coverages Built Into Section I

Beyond A through D, the form bundles smaller additional coverages the exam likes to test:

• Debris removal — reasonable cost to clear damaged property after a covered loss.
• Reasonable repairs — temporary measures to protect property from further damage.
• Trees, shrubs, and plants — named perils (fire, lightning, vandalism, theft — but not wind), usually 5% of Coverage A with a per-item cap.
• Credit card, forgery, and counterfeit money — commonly $500.
• Fire department service charge — up to a stated amount when a department is called to save covered property.

Reading an Exam Question Quickly

When a question hands you a Coverage A figure, immediately derive the others before reading the scenario: Coverage B = 10% of A, Coverage C = 50% of A, and Coverage D = 30% of A on HO-3. So a $400,000 dwelling carries $40,000 other structures, $200,000 contents, and $120,000 loss of use. Spotting those relationships turns a wordy scenario into a one-step calculation, which is exactly how the test rewards prepared candidates. Remember that Coverage B and Coverage D are additional insurance — they sit on top of Coverage A and do not erode it — while Coverage C is a separate limit that the special sublimits can cap.

ACV vs. Replacement Cost on Contents

A frequent contents question contrasts the two settlement methods. The default Coverage C basis is actual cash value, which subtracts depreciation. Adding replacement cost on contents keeps the same Coverage C limit but removes the depreciation deduction, so a destroyed five-year-old sofa is paid what a comparable new sofa costs rather than its depreciated value. The trade-off is a higher premium and the requirement that the insured actually replace the item to collect the full amount. Section 4.4 develops the mechanics of that two-step payment in detail.

The Special Limits of Liability

Coverage C imposes special dollar sublimits on theft-prone or easily concealed classes of property, and these are heavily tested numbers. Typical sublimits include money and bullion (around $200), securities and tickets (around $1,500), watercraft and trailers (around $1,500 each), jewelry, watches, and furs for theft (around $1,500), firearms for theft (around $2,500), and silverware for theft (around $2,500).

The trap is that these caps are per-loss class limits, not per-item, and most apply specifically to theft - a fire that destroys $9,000 of jewelry is paid on the regular Coverage C basis, while a theft of the same jewelry is capped at the jewelry sublimit. Scheduling the item on HO 04 61 removes the sublimit and the deductible.

Additional Coverages Within Section I

Beyond Coverages A-D, the homeowners form bundles Additional Coverages that apply without (usually) reducing the main limits: debris removal, reasonable repairs, trees/shrubs/plants (commonly 5% of Coverage A with a per-plant cap), fire department service charge (around $500, no deductible), property removed, credit card/forgery/counterfeit money, loss assessment, collapse, and glass breakage. Knowing that these are built in - and which carry their own sublimits or no deductible - lets a candidate answer questions that turn on a small but specific coverage the base policy already provides.

Exam Tip: Special limits mostly restrict theft of high-value classes and apply per class, not per item; contents default to ACV unless replacement-cost-on-contents is added; and Additional Coverages provide built-in protections like fire-department charge and debris removal.