Insurance
Guide

Policy forms by use

• HO-3 / HO-5 (homeowner). Primary residence. Open perils on dwelling, named perils (HO-3) or open perils (HO-5) on contents. Includes personal liability.
• DP-1 (basic dwelling). Named perils, ACV settlement. Cheapest. Common on cheap rentals or C/D-class.
• DP-2 (broad dwelling). Named perils, RCV (replacement cost). Mid-tier.
• DP-3 (special dwelling). Open perils on dwelling, RCV. Highest-quality landlord policy. Standard for Class A/B rentals.
• Commercial property (BOP or standalone). 5+ unit multifamily, commercial CRE. Includes GL.
• Builder’s risk. During construction or rehab. Covers materials on site + partial construction. Standard property excludes.
• Vacant property. Specialized policy when property unoccupied 30–60+ days. Standard DP/HO excludes after vacancy period.
• STR commercial (Proper, Safely, CBIZ). STR-specific. Hospitality coverage. Commercial liability tailored to short-stay guests.

Core coverages

• Dwelling. Physical structure. Set to replacement cost, not market value. Under-insuring triggers coinsurance penalty (claim reduced proportionally).
• Other structures. Detached garage, fence, shed. Typically 10% of dwelling coverage.
• Loss of rents. 6–12 months of rental income during uninhabitability after covered loss. Absolutely required for landlord policies.
• General liability. $1M per occurrence / $2M aggregate standard. Covers bodily injury and property damage claims from tenants or visitors.
• Personal property (if furnished rental). Appliances, furniture you own in the unit.
• Ordinance & law. Rebuild to current code after loss. Separate limit. Essential on older buildings.
• Equipment breakdown. HVAC, boiler, elevator. Mechanical failure coverage. Separate endorsement.
• Sewer / water backup. Excluded by standard policies. Add for $50–150/year.

Specialty coverages

• Flood (NFIP or private). Required in SFHA Zone A/V. Separate from property policy. NFIP caps $250k dwelling residential, $500k commercial. Private flood (Neptune, Hippo) offers higher limits and broader coverage.
• Earthquake. Required in CA/WA/OR/AK. Deductible 10–20%. California Earthquake Authority (CEA), GeoVera private.
• Umbrella. $1–5M personal or commercial excess liability. Sits above primary GL. $300–500/year for $1M personal.
• Environmental (pollution legal liability). $10k–50k/year for industrial or former industrial properties. Covers CERCLA/state cleanup.
• Directors & Officers (D&O). HOA, syndication, fund manager coverage.
• Professional liability (E&O). For licensed agents, PM companies, syndicators.
• Terrorism (TRIPRA). Typically included as declaration in commercial policies; opt-out available.

ACV vs. RCV

• ACV (Actual Cash Value). Replacement cost minus depreciation. $10k roof that’s 15 years old pays $3,000.
• RCV (Replacement Cost Value). Cost to replace with new, no depreciation. $10k roof pays $10k minus deductible.

RCV always preferred; costs 10–20% more premium. On old roofs and systems, ACV settlements can pay 20–30% of replacement cost. Insurers now impose age caps (roof 15–25 years, no new coverage).

Vacant property — the silent exclusion

Most DP/HO policies include a vacancy exclusion — after 30, 60, or 90 consecutive days of vacancy, coverage narrows dramatically. Theft, vandalism, water damage, and glass all become excluded. The building on your schedule is still "insured" but the claim you’ll file will be denied. Between tenants, during rehab, after inheritance — switch to a dedicated vacant property policy or builder’s risk policy.

Coinsurance trap

Building replacement cost:  $400,000
Policy limit:               $300,000 (75% covered)
Coinsurance requirement:    80%

Partial loss:               $100,000
Claim settlement:
  $100,000 × (300k / (400k × 80%))
  $100,000 × (300k / 320k)
  $100,000 × 0.9375 = $93,750 paid
  Owner absorbs $6,250 + deductible

On under-insured property, every partial claim is proportionally
reduced. On total loss, claim capped at policy limit.
Always insure to 100% of replacement cost — reassess annually.

Premium drivers

• Construction type (masonry < frame < wood)
• ISO fire protection rating (1-10, 1 best)
• Distance to fire station (< 5 miles preferred)
• Distance to hydrant (< 1,000 ft)
• Roof age (15+ year roofs face coverage restrictions)
• Wind zone (Gulf Coast, Atlantic hurricane)
• Claim history (3+ claims in 5 years = surcharge)
• Occupancy type (LTR < STR < vacant)
• LLC named insured (some carriers surcharge or decline)
• Deductible level (higher = lower premium)

Common pitfalls

• Vacant exclusion gap. Rehab property exceeds 60 days vacant mid-project. Water pipe bursts. Claim denied. Dedicated vacant policy before rehab.
• STR on homeowner policy. Standard HO-3 excludes commercial/business use. Guest falls, sues; claim denied + policy canceled. Dedicated STR commercial essential.
• LLC title + personal policy. Personal policy doesn’t match named insured on deed. Carrier denial: no insurable interest. Title and named insured must match.
• Under-insured dwelling. Coverage reflects purchase price, not replacement cost. Coinsurance penalty on partial loss.
• Roof age cap. Roof 18 years old. Carrier reduces to ACV schedule. $30k roof pays $12k. Replace proactively or accept.
• Tenant’s damage not covered. Landlord policy doesn’t cover tenant’s personal property or liability. Require tenant renter’s insurance in lease.
• Flood not required but needed. Zone X (outside SFHA). Lender doesn’t require. 2024 flood event $150k damage, no coverage. NFIP preferred-rate Zone X policy < $500/year.
• Named-storm deductible. Hurricane-zone policies have separate named-storm deductible (2–5% of dwelling). A 5% deductible on $500k = $25k out-of-pocket per hurricane event.