This endorsement can be added to your policy to cover losses such as those suffered by residents of the San Francisco Bay area when a 1989 earthquake caused damage of $20.3 billion. Unfortunately, only approximately 10 percent of the damage was covered by insurance, despite the frequency of earthquakes in California. The low reimbursement rate is due to several factors, including the failure of the majority of homeowners to purchase the endorsement and the effect of a deductible of 2 percent (in some states, 10 percent) of the insurance applicable separately to dwellings and other structures. A minimum deductible of $250 applies to any one loss. The endorsement covers damage caused by earth movement, including earthquakes, landslides, and volcanic eruptions.

Coverage C of HO-3 pays for loss on an actual cash-value basis, which means replacement cost minus depreciation. Except for something you bought very recently, you are underinsured from the replacement cost point of view. For example, your four-year-old large-screen television might cost $700 to replace today. If it has depreciated 10 percent per year, the insurer will pay you $420 in the event it is stolen or destroyed this year. You will have to find another $280 if you want to replace it. You can protect yourself from this unfavorable development by adding a personal property replacement cost endorsement to your homeowners policy. In the event of a loss, it will pay you the lowest of the following:

Some of the special limits that apply to personal property may be too low for you. Your jewelry or furs, for example, may be worth far more than the $1,000 limit. Such property can be listed and specifically insured to provide adequate coverage against all risks by adding the scheduled personal property endorsement. Another alternative is to pay an extra premium amount to have the main policy’s limit for a particular category of personal property, such as jewelry, watches, and furs, increased. (Note, however, that this leaves your coverage on a named-perils basis rather than changing it to open perils.) The insurer may require an appraisal at your expense before agreeing to a specified value.

Personal liability coverage and medical payments to others coverage does not apply to bodily injury or property damage arising out of business pursuits of any insured or out of rendering or failing to render professional services. The business pursuits exclusion does not apply, however, to activities that are ordinarily incident to nonbusiness pursuits. For example, your liability exposure in connection with an occasional garage sale would be covered. If you conduct garage sales regularly, however, such activity is a business pursuit and liability coverage does not apply. Liability stemming from rental operations, except for the occasional rental of your residence or rental to no more than two people, is also excluded. Normal part-time employment, such as an after-school job, is not considered a business pursuit. But what about regular, full-time summer employment as a lifeguard? Such employment could be considered a business pursuit. The business pursuits endorsement eliminates these exclusions.

The liability coverage of your homeowners policy provides protection against losses caused by bodily injury or property damage for which you may be responsible. Bodily injury is defined as bodily harm, sickness, or disease. It does not include the following, which are considered to be personal injury and are added by the personal injury endorsement:

Could you become liable for personal injury? Suppose you write a letter to the editor of the local paper in which you make a defamatory statement about a person. You could be sued for libel. Or suppose you make an oral defamatory statement about someone. You could be sued for slander.