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Methodology · Property Insurance

Property insurance methodology

Reviewed by · Last reviewed .

How we compute coverage on the Renters Insurance Coverage Estimator and the Homeowners Coverage Gap Analyzer: the ISO policy-form structure, replacement-cost mechanics, sub-limits and the scheduled-items endorsements that close them, and what's explicitly excluded.

ISO policy-form structure

U.S. personal-property insurance is overwhelmingly written on standardized ISO policy forms. The four most common:

  • HO 00 03 — Homeowners Special Form (open-perils on dwelling, named-perils on contents). The default for owner-occupied 1-4 family.
  • HO 00 04 — Contents Broad Form (renters). No dwelling coverage; named-perils on contents + liability.
  • HO 00 06 — Condo unit owners. Walls-in coverage (Coverage A) for unit interior, contents, and liability — designed to fit on top of the HOA master policy.
  • DP 00 03 — Dwelling Fire Special Form. Used for landlord-occupied or non-primary residences.

Standard coverage parts on a homeowners form: Coverage A (dwelling), B (other structures), C (personal property), D (loss-of-use), E (personal liability), F (medical payments to others). The renters form skips A and B; the dwelling-fire form is structured similarly.

Replacement cost vs actual cash value

Replacement Cost (RC) pays the cost to replace property with new property of like kind and quality, no depreciation deducted. Actual Cash Value (ACV)pays RC minus depreciation. On a 5-year-old laptop retailing for $1,400 new, RC pays $1,400; ACV might pay $600. The RC endorsement on personal property typically costs $30–60/year and is the highest-leverage upgrade on most policies. Verify the policy form designation explicitly — "HO 00 04 with RC endorsement" — not just the marketing summary.

On the dwelling, the 80% co-insurance rule (standard ISO HO 00 03 wording) requires Coverage A to be at least 80% of replacement cost; if it's not, partial-loss claims pay only the larger of (a) ACV or (b) loss × Coverage A / (0.8 × replacement cost). Construction-cost inflation since 2020 has materially under-insured policies that haven't been re-valuated. The gap analyzer flags this case and recommends a guaranteed-replacement-cost or extended-replacement-cost endorsement plus annual re-valuation.

Coverage C sub-limits and scheduled items

ISO HO 00 03 and HO 00 04 impose category sub-limits inside Coverage C. Typical numbers (form-year dependent):

  • Jewelry / watches / furs — $1,500 per occurrence (theft sub-limit)
  • Firearms — $2,500 per occurrence
  • Silverware / goldware / pewterware — $2,500 per occurrence
  • Watercraft — $1,500 (varies)
  • Money / bank notes / coins — $200
  • Securities / accounts / manuscripts — $1,500

Items above sub-limits should be scheduled (a "floater" endorsement) at appraised value. Scheduled coverage is broader — covers mysterious disappearance and full replacement value — and runs roughly 1–2% of scheduled value annually.

Liability tier sizing

Coverage E (personal liability) defends and pays bodily-injury and property-damage claims for which you are legally liable. We size by net-worth tier:

  • Net worth under $250K — $300K liability minimum
  • $250K – $1M net worth — $500K liability + consider umbrella
  • $1M+ net worth — $500K underlying + $1M–$5M umbrella
  • Significant attractive-nuisance exposure (pool, dog, rental property) — bump tier up regardless of net worth

Personal umbrella policies stack above the underlying homeowners + auto liability and price at $200–$500/year for $1M–$5M of additional coverage. The economics rarely fail.

Flood and earthquake exclusions

Standard ISO HO 00 03 explicitly excludes flood (Section I exclusions, peril 1.c) and earthquake (Section I exclusions, peril 2.b). Flood requires a separate FEMA National Flood Insurance Program (NFIP) policy or a private-market flood policy. NFIP residential building maximum is $250K; contents maximum is $100K. For high-value coastal properties, a private-market "excess flood" policy stacks above NFIP. Earthquake requires an endorsement (deductibles typically 10–25% of Coverage A — not flat dollar) or a separate earthquake policy.

Lender requirements

Fannie Mae Selling Guide §B7-3 requires hazard insurance on conforming-mortgage-backed properties at coverage equal to the unpaid principal balance of the loan, 100% of insurable value, or what is required to compensate damage on a replacement-cost basis — whichever is less, but never below replacement-cost adequacy. Always carry independently-purchased coverage above the lender minimum; lender-placed insurance, which kicks in if borrower coverage lapses, runs 2–10× the cost with worse terms.

Sources

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