4.3 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 tied together by percentages of Coverage A, so set Coverage A correctly and the others scale automatically.

Coverage A — Dwelling

Coverage A insures the dwelling on the residence premises, including structures attached to it, materials and supplies on or next to the premises for construction, and building fixtures and systems (built-in cabinets, wiring, plumbing, central air, in-ground pools attached to the structure).

What Coverage A does NOT insure:

• Land — never insured; it cannot be destroyed by a covered peril. If a slope is excavated by a covered peril, the policy pays to replace the structure, not the dirt.
• Detached structures (those fall under Coverage B).
• Personal property (Coverage C).

Critical distinction: Coverage A should equal replacement cost (cost to rebuild at today's prices), not market value. A home may sell for $400,000 but cost only $320,000 to rebuild because market value includes land and location.

Coverage B — Other Structures

Coverage B insures detached structures: a detached garage, a tool shed, a fence, a gazebo, a driveway, or a detached guest cottage. 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). That exposure needs a Dwelling or commercial policy.

Coverage C — Personal Property

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

Special Limits of Liability (Sublimits)

The exam loves these because they catch the unwary. Certain categories are capped no matter how high Coverage C is:

Exam Alert: A $10,000 diamond ring stolen from the home is paid only $1,500 under the standard policy. To insure it fully, the owner needs a Scheduled Personal Property endorsement (covered in 4.7).

Worldwide and Off-Premises Coverage

Coverage C follows the insured worldwide, but property usually situated away from the residence (e.g., a student's belongings at a dorm) is limited to 10% of Coverage C, subject to a $1,000 minimum. A laptop stolen from a hotel during a trip is at-home property temporarily away and gets the full limit; belongings kept long-term off premises get the 10% cap.

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:

How ALE Is Calculated

ALE pays only the extra cost, not total cost:

• Normal monthly housing cost: $2,000
• Temporary rental + extra commuting: $3,200
• ALE paid: $3,200 − $2,000 = $1,200/month

Percentage Relationships (Memorize)

Each percentage can be raised by endorsement for extra premium.

Additional Coverages Built Into Section I

Beyond A through D, the homeowners form grants several smaller additional coverages the exam likes to test. Debris removal pays the reasonable cost to clear away damaged property after a covered loss. Reasonable repairs reimburses temporary measures the insured takes to protect property from further damage. Trees, shrubs, and plants are covered for specific named perils (such as fire, lightning, vandalism, or theft — but not wind), usually limited to 5% of Coverage A with a per-item cap. Credit card, forgery, and counterfeit money coverage provides a small limit (commonly $500) for fraudulent charges.

Fire department service charge reimburses up to a stated amount when a department is called to save covered property.

ACV vs. Replacement Cost on Contents

A frequent contents question contrasts settlement methods. The default Coverage C basis is actual cash value, which subtracts depreciation. A producer should explain that 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.