California Property & Casualty Broker-AgentProperty InsuranceMedium
A homeowner has an HO-3 policy and experiences damage to their detached garage due to a covered peril. The garage is valued at $25,000. Their Coverage A (Dwelling) limit is $300,000. What is the maximum amount the policy will pay for the damage to the detached garage, assuming no deductible applies?
- A$25,000
- B$75,000
- C$30,000
- D$15,000
Show answer & explanationAnswer & explanation
Correct answer: C. $30,000
Under an HO-3 policy, Coverage B (Other Structures) is typically 10% of Coverage A (Dwelling). With a Coverage A limit of $300,000, Coverage B would be 10% of $300,000, which is $30,000. Since the garage is valued at $25,000, and this is less than the $30,000 Coverage B limit, the policy will pay $25,000.
Why the other options are wrong
- A. While the garage is valued at $25,000, the question asks for the maximum the policy WILL PAY, which is the actual loss up to the coverage limit. The limit is $30,000, so $25,000 would be paid.
- B. This would be 25% of Coverage A, which is not the standard for Coverage B.
- D. This would be 5% of Coverage A, which is not the standard for Coverage B.
HO-3 Coverage B (Other Structures)
Coverage B in an HO-3 policy provides protection for other structures on the insured's property that are not attached to the main dwelling, such as detached garages, sheds, or fences.
- Standard limit is 10% of Coverage A.
- Covers structures separated from the dwelling by clear space.
- Excludes structures used for business or rented to non-tenants.
Memory trick: Remember 'B' for 'Buildings apart' is 10% of the main 'A' dwelling.