Texas Property & Casualty: Types of Property Policies

Correct

The answer is A: $40,000

The HO-3 pays full replacement cost only when the home is insured for at least 80% of its replacement cost: 80% of $250,000 = $200,000. The insured carries $160,000, so the insurer pays the larger of two amounts: the actual cash value of the damaged part ($30,000), or the proportional amount, ($160,000 / $200,000) x $50,000 = $40,000. The larger figure, $40,000, is paid, and the homeowner bears the remaining $10,000.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is C: Vandalism is not paid; most other perils are reduced 15%

Under the standard commercial property vacancy provision, if a building has been vacant for more than 60 consecutive days, the insurer will not pay for loss caused by vandalism, sprinkler leakage, building glass breakage, water damage, theft, or attempted theft. For other covered causes of loss, the insurer reduces the payment by 15%. In this scenario, since the building has been vacant for 90 days and the loss is from vandalism, the claim would be denied entirely.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is A: The motor, the dough, and any resulting business income loss

Equipment Breakdown (EB) coverage pays for damage to the equipment itself (the motor) and to other covered property damaged by the breakdown (the dough). Optional EB coverages, when selected, add business income, extra expense, expediting expenses and spoilage. Here business income is included, so the income lost while the mixer is repaired is covered as well. Electrical failure is exactly the type of sudden, accidental equipment breakdown the coverage is designed to address.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is B: HO-8 (Modified Coverage Form)

HO-8 (Modified Coverage Form) is specifically designed for older homes where the cost of exact reproduction (using original materials and construction methods) far exceeds the home's market value. HO-8 settles losses based on repair using common construction materials and methods rather than exact reproduction, which keeps premiums affordable. For this Craftsman bungalow, HO-8 would cover repairs using modern equivalents rather than requiring exact period-accurate craftsmanship at $380,000.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is A: $5,400 — the whole rent plus the extra food cost

Coverage D pays the INCREASE in living expenses, not the total temporary costs. The mortgage on the damaged house still has to be paid, so the whole rent is an additional cost: $2,400 x 2 = $4,800. Increase in food: ($900 - $600) x 2 = $600. Total ALE: $4,800 + $600 = $5,400. The family continues paying their mortgage and their normal grocery spending out of pocket. ALE only reimburses the additional costs above the family's normal standard of living that are necessary to maintain their customary lifestyle.

Reviewed in our October 2026 Texas fact-check.