Property Insurance

Exam rule

Property insurance transfers stated financial risks to an insurer in return for a premium. It pays only when the insured property, cause of loss and claimant fit the contract. It does not prevent damage, replace a home inspection, prove title or guarantee payment for every loss. The declarations page lists key facts such as the insured property, policy period, limits, deductibles, premium and mortgagee. The full policy supplies the coverage terms, duties, conditions and exclusions. An endorsement changes part of that policy. A buyer can shop through an insurance company, an agent or a broker. A captive agent works for one insurer. An independent agent may represent one or more insurers. A direct writer sells through its own staff, representatives or website. A broker seeks coverage for the buyer but usually cannot issue a policy or bind an insurer before a company accepts the risk. An application or quote is not proof that coverage exists. Buyers should verify the New York license, answer underwriting questions fully and compare coverage, limits, exclusions, deductibles, service and insurer reliability, not premium alone. Online shopping can be useful, but the buyer should confirm that the site is secure and that the insurer or producer is licensed.

Exam rule

A monoline policy has one line of coverage. A package policy joins two or more lines. It generally costs less than buying each line on its own. Standard home and tenant policies are packages. They usually include property, liability, theft and medical payments coverage. Property coverage can protect the home, other structures and personal property from covered losses. Common perils include fire, windstorm, hail, tornado, vandalism and other listed physical damage. Theft coverage can reach personal property at home and, under the policy terms, away from home. Additional living expense can pay the added cost of living elsewhere when a covered loss makes the home unsafe to live in. Personal liability applies when an insured is legally at fault for bodily injury or property damage caused by negligence. It may also pay covered legal defense costs. Medical payments can pay limited medical costs for an injured guest without first proving negligence. Named-peril coverage pays only for causes listed in the policy. Open-peril coverage applies unless the cause is excluded. Neither one covers every loss. Flood is outside a standard homeowners policy. Earthquake and other risks may also be excluded. Separate coverage or an endorsement may be available. Always read the contract.

Exam rule

Match the form to both the person and the coverage pattern. HO-1 is the basic named-peril policy, and DFS says very few insurers sell it. HO-2 is the broad named-peril form. It adds causes such as falling objects, weight of ice or snow, accidental water discharge, freezing and certain electrical damage. HO-3 is the special form and the most widely used homeowners form. It generally covers the dwelling against direct physical loss unless the cause is excluded. Personal property does not automatically receive the same open-peril treatment. HO-5 is the comprehensive form. It generally gives the dwelling and personal possessions open-peril coverage, subject to exclusions. The New York syllabus labels HO-8 as the Market Value Policy and describes cash-value coverage. Current DFS guidance adds an important real-world detail: its Market Value Policy is a modified basic form for many older homes and generally uses a like-kind-and-quality repair standard, not exact replacement. Learn the syllabus label for the exam, but read the issued policy before stating how a claim will be valued. HO-4 is for tenants and cooperative shareholders. It covers contents and personal liability, while the landlord or cooperative usually insures the building. HO-6 is for condominium unit owners. It can cover contents, alterations, appliances, fixtures, improvements and interior walls. The condominium association usually insures the building and common areas.

Exam rule

Start with the cost to rebuild the structure, excluding land. Sale price, assessed value and loan balance answer different questions. Actual cash value is current replacement cost minus depreciation. Replacement cost does not subtract depreciation, subject to the policy limit, deductible and other terms. Contents are commonly covered at actual cash value unless the owner buys replacement-cost coverage. For the structure, DFS explains the 80 percent rule. If the owner buys replacement-cost coverage and insures the home for at least 80 percent of replacement cost, a covered partial loss can receive replacement-cost treatment, less the deductible. Below 80 percent, a coinsurance penalty may reduce the payment. The policy still cannot pay more than its limit. Most HO-3 policies use dwelling-based percentages for added categories. DFS gives common examples of 10 percent for other structures, 50 percent for personal property on the premises, 10 percent for personal property off the premises and 20 percent for additional living expense. These are typical figures, not a substitute for the declarations page. Valuable jewelry, art, collections or other property may have special caps. An endorsement or personal articles floater can raise or schedule coverage. The owner should make a room-by-room inventory, keep receipts, photos or video away from the home and update the file after major purchases. Coverage should also be reviewed after an addition, a major improvement or a rise in rebuilding cost. Liability limits can be increased when the basic amount is too low.

Exam rule

Start in the voluntary insurance market. New York has special routes when regular coverage is hard to find. NYPIUA offers limited property coverage. Its policies usually use actual cash value and do not include liability, flood or theft. More protection may need a wraparound policy from the regular market. C-MAP is a network that helps eligible coastal homeowners seek coverage. It serves set areas in the Bronx, Brooklyn, Nassau, Queens, Staten Island, Suffolk and Westchester. An existing owner usually needs a cancellation, nonrenewal or conditional-renewal notice for a reason other than nonpayment. A new buyer names the prior home insurer. Flood needs separate coverage, often through the National Flood Insurance Program in a community that takes part. Most home policies do not cover flood. Flood coverage should be arranged before it is needed. Do not wait until a storm is near. Premium can change with location, building age and type, use, nearby fire service, limits, deductible and discounts. A standard deductible is the owner's share of a covered property loss. A higher deductible usually lowers the premium but raises the owner's out-of-pocket risk. Windstorm and hurricane deductibles may be a percent of the dwelling amount. New York requires notice of all deductibles. A hurricane deductible must also appear as a dollar amount on the declarations page. It applies only when the approved trigger is met. Current rules tie the trigger to hurricane landfall in the state and a set time around official watches or warnings. Cancellation ends an active policy. During the first 60 days, the insurer may cancel for a stated valid reason. After 60 days, a three-year protected period usually applies. Grounds are limited and include nonpayment, fraud, a key false statement, a higher hazard or a change that makes the property uninsurable under fair and uniform rules. Nonrenewal ends coverage at the end of the term. New York usually requires written notice 45 to 60 days before expiration.

Exam rule

Commercial property insurance covers business buildings, contents and other insured property. A business owners policy, called a BOP, joins property and liability coverage. The property part can pay to fix or replace covered business property. The liability part can cover a claim when fault causes bodily injury or damage to someone else's property. It may also pay covered legal defense costs. Business income coverage can replace covered lost income and normal costs while the business cannot run after a covered loss. Extra expense coverage can pay covered added costs of a short-term move or other temporary work. Commercial basic and broad forms list covered causes of loss. A special form generally covers direct physical loss unless the cause is excluded. The words all risk never means every risk. An umbrella is excess liability coverage. It starts after the required base liability limit is reached. It does not increase the building's property limit. A mortgage lender wants the home behind its loan to stay insured. The lender is often named as mortgagee on the declarations page. An escrow account can collect one-twelfth of the yearly tax and insurance cost with each monthly payment. Escrow does not create coverage. If the owner's policy ends, a lender may buy force-placed insurance. It can cost more and may protect mainly the lender, not the owner's belongings or liability. No lender will demand a policy in a cash sale. The buyer should arrange and bind coverage before taking title or possession. Unless the contract changes the rule, New York's risk-of-loss law leaves the risk with the seller while neither title nor possession has passed. It shifts to the buyer after either one passes. A real estate licensee may explain the purpose, usual cost factors, lender interest, escrow and need for timely coverage. A person without an insurance license should not evaluate a policy for a fee, recommend a set policy or claim to be an insurance advisor. Send policy and binding questions to a licensed insurance professional.