A homeowner's HO-3 policy has a Coverage A (Dwelling) limit of $250,000. The policy states that Coverage C (Personal Property) is 50% of Coverage A. The homeowner also has a $1,000 deductible. If a fire causes $100,000 damage to the dwelling and $70,000 damage to personal property, how much will the insurer pay for the personal property loss?
- A$70,000
- B$125,000
- C$124,000
- D$69,000
Show answer & explanationAnswer & explanation
Correct answer: A. $70,000
First, calculate the Coverage C limit: 50% of $250,000 = $125,000. The personal property loss is $70,000, which is less than the Coverage C limit. The deductible is applied to the total covered loss of the occurrence, not separately to each coverage part unless specified. Since the question asks specifically for the personal property loss payment, and the total loss is $170,000, and only one deductible applies to the total loss, the full $70,000 for personal property will be paid, with the deductible being applied to the dwelling portion or the total payout. However, in typical HO policies, the deductible applies per occurrence to the total loss. Since the question asks for the payment 'for the personal property loss', and the loss is within its specific limit, the full $70,000 would be covered as part of the total claim, with the deductible reducing the overall payment. If we are to isolate the personal property payment as if it were a standalone claim, the deductible would apply. However, in a single occurrence, the deductible applies once. Assuming the deductible is applied to the overall claim, and the personal property loss is below its sublimit, the full $70,000 for personal property would be covered.
Why the other options are wrong
- B. This is the maximum limit for Coverage C, not the actual payment for this specific loss.
- C. This is the maximum limit for Coverage C minus the deductible, which is not how the deductible is applied in this scenario.
- D. This would be the payment if a separate deductible applied to the personal property loss, which is generally not how homeowners policies work for a single occurrence.
Deductible Application (Single Occurrence)
In most property insurance policies, especially homeowners, a single deductible applies once per occurrence, regardless of how many different coverage parts (e.g., dwelling, personal property) are affected by that single event.
- Applies once per covered loss event.
- Reduces the total amount paid by the insurer.
- Not typically applied separately to each coverage part.
- Ensures the insured bears the initial portion of the loss.
Memory trick: One event, one deductible, many coverages.