BU353 Lecture Notes - Lecture 12: Property Insurance, Capital Market, Reinsurance
Chapter 12: Homeowners Insurance
Homeowners policies are multiple-line policies; they provide coverage for first-party property, third-
party liability, voluntary medical payments and voluntary payment for property damage of others. If the
policy lists the perils that are covered it is called a specified or named perils policy. In other cases, the
policy covers all perils except those specifically excluded (known as an all risk or all perils policy).
Section I provides coverage for damage to both buildings and personal property due to a broad range of
perils. Section II provides coverage for compensatory damages and defense costs for unintentional
bodily injury and property damage to third parties that arise from accidents at the residence or that
result from actions of the insured.
Section I
A. Dwelling Building - covers the poliholder’s ai residee, attahed strutures, peraetl
installed outdoor equipment (fences, swimming pool etc.)
B. Detached Private Structures - covers structures not attached to main residence (garages etc.)
C. Personal Property - covers items that are owned or used by the insured regardless of whether
the are lost or daaged at the isured’s preises or aa fro hoe
D. Additional Living Expenses - provides reimbursement for the additional expenses incurred if the
dwelling cannot be used because it is damaged
Section II
E. Personal Liability - pays for compensatory damages and defense costs for unintentional bodily
injury and property damage to third parties that arise from accidents at the
residence
F. Voluntary Medical Payments - pays the medical expenses of non-residents who are injured while
on the premises
G. Voluntary Payment for Damage to Property - covers unintentional direct damage caused by the
insured to property of others (no legal liability exists)
H. Voluntary Compensation for Residence Employee - coverage for injury to persons employed by
the insured to perform duties in connection
with the maintenance or use of the premises
Loss settlement for homeowners policies varies depending on the type of policy and whether the loss is
to the dwelling or personal property. The most common types of loss settlement methods are like-kind
replacement cost, guaranteed replacement cost, and actual cash value. Being insured on a replacement
cost basis means that the insurer will pay the cost to repair or replace the building with materials of
similar kind and quality. Guaranteed replacement cost is when the insurer will pay the cost of repairs
even if it exceeds the amount of insurance for Coverage A. Actual cash value is defined as replacement
cost less depreciation.
Personal umbrella policies provide liability coverage with high limits (usually 1M+) above liability
coverage provided by homeowners and automobile liability coverage. If losses exceed the limits on
these other priar oerages, the the urella poli ill pa losses up to its liit. Most umbrella
policies also provide some coverage for liailit eposures o oered uder the isured’s priar
policy.
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Document Summary
Homeowners policies are multiple-line policies; they provide coverage for first-party property, third- party liability, voluntary medical payments and voluntary payment for property damage of others. If the policy lists the perils that are covered it is called a specified or named perils policy. In other cases, the policy covers all perils except those specifically excluded (known as an all risk or all perils policy). Section i provides coverage for damage to both buildings and personal property due to a broad range of perils. Section ii provides coverage for compensatory damages and defense costs for unintentional bodily injury and property damage to third parties that arise from accidents at the residence or that result from actions of the insured. Loss settlement for homeowners policies varies depending on the type of policy and whether the loss is to the dwelling or personal property. The most common types of loss settlement methods are like-kind replacement cost, guaranteed replacement cost, and actual cash value.
