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Practice test · 25 questions
Homeowners Insurance Practice Test (Part 1 of 2)
Homeowners claims are the bread and butter of property adjusting, so the homeowners policy is the most heavily tested form on every all-lines adjuster exam. These questions are written against the ISO HO 00 03 05 11 (HO-3) unless a question names another form.
You will see coverage percentages, Coverage C special limits, the named perils for personal property, the water and earth movement exclusions, and replacement cost math under the 80% rule.
Questions
25
Suggested time
30 min
Difficulty mix
7 / 14 / 4
Passing target
70%
What these questions cover
HO-2, HO-3, HO-4, HO-5, HO-6 and HO-8: who each form fits
Coverages A to D and their default percentages
Coverage C special limits of liability and additional coverages
Named perils, open perils and the main Section I exclusions
Replacement cost versus actual cash value and the 80% insurance-to-value rule
Section II personal liability and medical payments to others
Under the ISO 2011 HO-3 (HO 00 03 05 11), on what basis are the dwelling (Coverage A) and personal property (Coverage C) insured?
Show answer and explanation
Correct answer: C. Dwelling on an open perils basis; personal property against 16 named perils
The HO-3 insures Coverages A and B against direct physical loss unless the loss is excluded (open perils, also called special form), while Coverage C is limited to 16 named perils such as fire, windstorm, theft and freezing. Open perils on both the dwelling and contents describes the HO-5, and named perils on both describes the HO-2.
Which ISO homeowners form provides open perils coverage on the dwelling, other structures and personal property of an owner-occupant, making it the broadest of the owner forms?
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Correct answer: A. HO-5 (Comprehensive Form)
The HO-5 Comprehensive Form insures the dwelling, other structures and personal property against direct physical loss unless excluded. The HO-3 is the common trap: it gives open perils coverage on the dwelling and other structures but covers personal property only against named perils. The HO-2 and HO-8 are named perils forms throughout.
Which ISO homeowners form is designed for a tenant who needs coverage for personal property and personal liability but has no ownership interest in the building?
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Correct answer: D. HO-4 (Contents Broad Form)
The HO-4 Contents Broad Form covers a tenant's personal property against named perils and includes loss of use, personal liability and medical payments to others. It provides no dwelling coverage because the tenant does not own the building, though it gives up to 10% of Coverage C for building additions and alterations the tenant paid for. The HO-6 is for condominium and cooperative unit owners.
Wei owns a condominium unit insured under the ISO HO-6 (HO 00 06 05 11). A covered fire destroys the kitchen cabinets and built-in appliances he installed in the unit. Under which part of his policy is this damage insured?
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Correct answer: B. Coverage A, which includes alterations, appliances and fixtures in the unit
In the HO-6, Coverage A covers alterations, appliances, fixtures and improvements that are part of the building within the residence premises, plus property that is the owner's insurance responsibility under the association agreement. Built-in cabinets are part of the building, not contents. ISO rules automatically provide $5,000 of Coverage A. Building Additions and Alterations is the comparable provision in the tenant's HO-4, not the HO-6.
The Okafor family owns and lives in a 1910 home with plaster walls and a slate roof. Rebuilding with original materials would cost far more than the home's market value, and the insurer will not write it on its standard forms. Which ISO form is designed for this situation?
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Correct answer: A. HO-8 (Modified Coverage Form)
The HO-8 is meant for owner-occupied homes that may not meet underwriting standards for other forms, often older homes whose replacement cost greatly exceeds market value. It settles repaired building losses using common construction materials and methods that are functionally equivalent, such as asphalt shingles in place of slate. The HO-5 is the broadest owner form, and the HO-4 and HO-6 do not insure a house.
Rosa owns a two-family dwelling but lives across town and rents both units to tenants. She asks her agent to insure the building on an ISO HO-3. What is the problem with her request?
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Correct answer: C. The HO-3 is an owner-occupant form, and Rosa does not live in the dwelling
Forms HO-2, HO-3, HO-5 and HO-8 may be issued only to the owner-occupant of a one- to four-family dwelling. Because Rosa does not live in the building, she is not eligible for an HO-3 on it, and a dwelling (landlord) policy is the usual fit. A two-family building qualifies when the owner lives in one unit, and renting part of an owner-occupied home does not by itself disqualify it.
Imani, age 23, is the named insured's daughter. She lived at home until moving into an off-campus apartment to attend graduate school full time. Under the ISO 2011 HO-3, is she an insured under her parents' policy?
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Correct answer: B. Yes, because she is a full-time student relative under 24 who lived at home before school
The 2011 definition of insured includes a full-time student who was a resident of the household before moving out to attend school, if the student is under 24 and a relative, or under 21 and in the care of the named insured or a resident relative. Imani is a 23-year-old relative, so she is an insured under both sections. The age 21 cutoff applies only to non-relatives in the household's care.
Under the ISO 2011 HO-3 definition of business, an activity done for compensation (other than a trade, profession or occupation) is not a business if no insured received more than what total amount for it in the 12 months before the policy period began?
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Correct answer: D. $2,000
The 2011 definition carves out of business one or more activities for which no insured receives more than $2,000 in total compensation during the 12 months before the beginning of the policy period. Volunteer work paid only for expenses, home day care exchanged without pay, and home day care for a relative are also carved out. Above the $2,000 threshold, the Section II business exclusion can apply.
The Haddad family has several people working for them or at their home. Under the ISO 2011 HO-3 definitions, which of the following is a residence employee?
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Correct answer: C. A nanny the family employs to care for their children in the home
A residence employee is an employee of an insured whose duties relate to the maintenance or use of the residence premises, including household or domestic services, so a family-employed nanny qualifies. The definition specifically excludes a temporary employee furnished to substitute for a permanent residence employee on leave. A business assistant is an employee but not a residence employee, and the roofer works for the contractor, not the insured.
An ISO 2011 HO-3 is written with a Coverage A limit of $250,000 and the standard program percentages for Coverages B, C and D. What are the resulting limits for Coverages B, C and D?
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Correct answer: B. B $25,000; C $125,000; D $75,000
Coverage B is 10% of Coverage A ($25,000), Coverage C is 50% of A ($125,000), and under current ISO program rules Coverage D is 30% of A ($75,000) for the HO-2, HO-3 and HO-5. The $50,000 figure for D reflects the 20% used in older editions. Coverage B is additional to, and does not reduce, the Coverage A limit.
Darnell converted his detached garage into a workshop where he builds and sells custom furniture full time. A covered fire destroys the garage. Under his ISO 2011 HO-3, how does Coverage B respond to the loss of the structure?
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Correct answer: D. Not covered, because Coverage B excludes structures from which any business is conducted
Coverage B does not cover other structures from which any business is conducted. A full-time furniture business in the garage triggers this exclusion, so the structure has no Coverage B protection. The $2,500 special limit applies to business personal property under Coverage C, not to the building itself. A home business endorsement or a commercial policy is needed for this exposure.
Lucia's ISO 2011 HO-3 has a Coverage C limit of $150,000. Furniture and linens usually kept at her lake cottage, which is not the residence premises, are destroyed by a covered fire, a $22,000 loss. Ignoring the deductible, what is the most Coverage C pays?
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Correct answer: A. $15,000
Personal property usually located at an insured's residence other than the residence premises is limited to 10% of the Coverage C limit or $1,000, whichever is greater. Ten percent of $150,000 is $15,000, so the payment is capped there. The full $22,000 would be available only for property not usually kept at another residence, such as items taken along on a trip.
A covered fire makes the Nguyen family's home unlivable for two months. They rent a furnished apartment for $2,800 a month, their food costs rise from $900 to $1,300 a month, and their $1,700 monthly mortgage payment continues. Assuming an adequate limit, what does Coverage D pay?
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Correct answer: C. $6,400
Additional living expense pays the necessary increase in living expenses so the household can keep its normal standard of living. The rental is a new cost of $2,800 and food rose by $400, an increase of $3,200 a month, or $6,400 for two months. The mortgage would be paid anyway, so it is not an increase, and only the extra food cost, not the whole grocery bill, counts.
An explosion destroys the house next door to Farah's home. Her home is undamaged, but the city bars all residents from the block for three weeks while the neighboring structure is stabilized. Under her ISO 2011 HO-3, how much of her additional living expense is covered?
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Correct answer: B. Up to two weeks, under the Civil Authority Prohibits Use provision
When a civil authority prohibits use of the residence premises because of direct damage to neighboring premises by a Peril Insured Against, Coverage D pays additional living expense and fair rental value for no more than two weeks. Explosion is an insured peril, so Farah's own home does not need to be damaged. The third week is her own cost.
Under the standard ISO homeowners program limits used with the 2011 forms, the Coverage D (loss of use) limit on an HO-6 unit-owners policy equals what amount?
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Correct answer: D. 50% of Coverage C
Because HO-6 Coverage A is usually small, Coverage D is based on the personal property limit: 50% of Coverage C, raised from 40% when the 2000 edition was introduced. By comparison, the HO-4 provides 30% of Coverage C, the HO-2, HO-3 and HO-5 provide 30% of Coverage A, and the HO-8 provides 10% of Coverage A.
A burglar takes $900 in cash, a $400 prepaid gift card (a stored value card) and a coin collection valued at $1,100 from the Mendez home. Under the ISO 2011 HO-3, ignoring the deductible, what is the most Coverage C pays for these items?
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Correct answer: A. $200
The $200 special limit covers money, bank notes, bullion, coins, medals, stored value cards and smart cards, and it is the total for all property in that category for each loss. Cash, the gift card and the coins all fall into this single category, so the combined payment is $200. Scheduling the coin collection by endorsement would provide much broader coverage.
A covered kitchen fire destroys Grace's diamond ring, which has an actual cash value of $6,000. She has an unendorsed ISO 2011 HO-3 with a $100,000 Coverage C limit and a $500 deductible. How much does Coverage C pay for the ring?
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Correct answer: C. $5,500
The $1,500 special limit on jewelry, watches and furs applies only to loss by theft. Fire is a named peril for Coverage C, so the ring is covered at its actual cash value of $6,000, less the $500 deductible, for $5,500. The $1,000 answer wrongly applies the theft limit and then subtracts the deductible.
Sofia, a freelance graphic designer, uses a $2,800 laptop primarily for her business. It is stolen from a table at a coffee shop. Under her unendorsed ISO 2011 HO-3, what special limit applies to the laptop?
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Correct answer: D. $1,500, the limit for business property away from the residence premises
The 2011 HO-3 limits property used primarily for business purposes to $2,500 while on the residence premises and $1,500 while away from it. The laptop was stolen at a coffee shop, so the $1,500 off-premises limit applies. Because the laptop is used primarily for business, a special limit applies even though theft is a covered peril.
A windstorm flips Andre's 16-foot fishing boat and its trailer, which were parked in his open driveway, causing $2,400 of damage. Under the ISO 2011 HO-3 Coverage C, how is this loss treated?
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Correct answer: A. Not covered, because windstorm covers watercraft only while inside a fully enclosed building
The Windstorm or Hail peril includes loss to watercraft and their trailers, furnishings, equipment and outboard motors only while inside a fully enclosed building. A boat in an open driveway has no windstorm coverage. The $1,500 watercraft limit, which includes the trailer, would cap a covered loss such as fire, but a special limit cannot create coverage that the peril itself denies.
A thief steals Harper's riding lawn mower from her toolshed. The mower is not required to be registered for road use and is used solely to maintain her residence. How does her ISO 2011 HO-3 Coverage C treat the theft?
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Correct answer: B. Covered, because unregistered vehicles used solely to service a residence are excepted
Coverage C excludes motor vehicles, but the exclusion does not apply to motor vehicles not required to be registered for use on public roads that are used solely to service a residence or designed to assist the handicapped. A riding mower used only for the insured's yard is therefore covered for theft. No special limit applies to it, and theft from a shed on the premises is covered.
Under the ISO 2011 HO-3, which of these Coverage C special limits applies only when the loss is caused by theft?
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Correct answer: C. $2,500 on silverware, goldware and pewterware
The limits on jewelry, watches and furs ($1,500), firearms ($2,500) and silverware, goldware, platinumware and pewterware ($2,500) apply only to loss by theft. The money, securities, watercraft and trailer limits apply to loss from any covered peril. So a silver tea set destroyed by fire is not capped at $2,500, but the same set stolen would be.
Ivan's dwelling is insured for $200,000 under an ISO 2011 HO-3. A covered fire causes $200,000 of damage to the dwelling, and debris removal costs $14,000. Ignoring the deductible, what is the total Coverage A payment?
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Correct answer: D. $210,000
Debris removal is included in the limit that applies to the damaged property. When the damage plus debris removal exceeds that limit, an additional 5% of the limit is available for debris removal. Five percent of $200,000 is $10,000, so the total is $210,000 and Ivan absorbs the remaining $4,000. The $220,000 answer wrongly treats the extra amount as 10%.
Under the ISO 2011 HO-3 Additional Coverage for trees, shrubs and other plants, which of these losses to landscaping on the residence premises is covered?
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Correct answer: B. A delivery van driven by a nonresident crashes through a hedge
Trees, shrubs, plants and lawns are covered only for fire or lightning, explosion, riot or civil commotion, aircraft, vehicles not owned or operated by a resident of the residence premises, vandalism or malicious mischief, and theft. Windstorm and weight of ice are not on the list, and a vehicle driven by a resident is excluded. The limit is 5% of Coverage A, with no more than $500 for any one tree, shrub or plant.
As a wildfire approaches, the Begay family hurries furniture out of their home and onto a rental truck. A dresser slips off the loading ramp and is smashed. The fire never reaches the home. How does their ISO 2011 HO-3 treat the dresser?
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Correct answer: C. Covered, because property removed from endangered premises is insured against any cause
The Property Removed additional coverage insures covered property against direct loss from any cause while it is being removed from a premises endangered by a Peril Insured Against, and for up to 30 days while removed. Fire endangered the home, so the accidental breakage is covered even though dropping is not a named peril. This coverage does not increase the limit that applies to the property.
A windstorm damages the clubhouse owned in common by the members of Daniel's homeowners association. The association assesses each owner $3,200 for repairs. Under Daniel's unendorsed ISO 2011 HO-3, ignoring any deductible, how much of the assessment is covered?
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Correct answer: A. Up to $1,000
Loss Assessment pays up to $1,000 for the insured's share of an assessment by a property owners association resulting from direct loss to collectively owned property by a Peril Insured Against under Coverage A, other than earthquake or volcanic land shock. Windstorm qualifies, so Daniel recovers up to $1,000. A higher limit requires an endorsement such as HO 04 35, Supplemental Loss Assessment Coverage.
Pick an answer and the correct choice appears with an explanation and the policy form, statute or FEMA document it comes from. Difficulty is labeled on each question: recall items test a definition, application items put the rule into a short claim scenario, and challenging items combine two rules or require a calculation.
Aim for at least 80% before moving on, since the real exam mixes these topics with state law under time pressure. When you are consistently above that line, take a full timed exam or the version for your state: Texas or Florida 6-20.