The basic form is a “named perils” policy (that is, the policy explicitly names what perils are covered) and covers losses due to: • Fire • Lightning • Internal explosion, such as a stove or water heater There are two optional endorsements available with DP-1 coverage:• Vandalism or malicious mischief (V&MM) • Extended coverage, which includes damages due to the following: o Hail or windstorms o Other explosions o Riot/civil commotion o Aircraft or vehicles o Smoke o Volcanic eruptions Claims under a DP-1 policy are settled on an actual cash value (ACV) basis by default—however, you can sometimes opt for a replacement cost value (RCV) policy for an additional cost.The DP-1 form is usually the form of choice for vacant homes or properties, and it may be the only option for these dwellings. If you own rental or investment properties, you need to protect them from a host of potential perils, including fire, lightning, vandalism and theft. If your primary residence is located on the rental or investment property, a homeowners policy would cover you from many of the potential risks. But what if you live somewhere else? A dwelling fire policy may be the type of coverage you need to insure your rental or investment property from damages. Just like homeowners policies, there are several different types of dwelling fire coverage. DP-1 is known as the basic form, DP-2 is known as the broad form and DP-3 is known as the special form. Each provides a significantly different level of coverage.
For some consumers, a dwelling fire policy is a proper alternative to a homeowners policy. Despite its name, dwelling insurance policies can cover much more than just fire. But this kind of policy isn’t for everyone, so here are the dwelling fire basics. A dwelling fire policy may be beneficial for:
Dwelling Fire Insurance BasicsThe coverage is very similar to a homeowners policy, with one significant difference – a dwelling fire policy is typically used for someone that does not make the property their primary residence. Dwelling policies typically do not provide liability coverage, like some homeowners policy forms, but they can provide other similar coverages to standard homeowners policies. Just like homeowners insurance, there are several different types of dwelling fire policies. DP-1 is known as the basic form, DP-2 is known as the broad form and DP-3 is known as the special form. Each provides a significantly different level of coverage. DP-1: Basic FormThe basic form is a “named perils” policy. The policy explicitly names what perils are covered and typically covers losses due to:
A DP-1 can also provide coverage for your other structures on the property, personal property usual to the occupancy dwelling, fair rental value, debris removal, and improvements, alterations and additions. When a Premium for Extended Coverage is shown in the Declarations, perils such as Windstorm or Hail, Explosion, Riot or Civil Commotion, Aircraft, Vehicles, Smoke, and Volcanic Eruption can also be included (subject to exclusions). You also may be able to include Vandalism or Malicious Mischief. Talk to your agent about including these coverages. Claims under a DP-1 dwelling fire policy are settled on an actual cash value (ACV) basis—however, you may be able to opt for a replacement cost value (RCV) policy for an additional cost. Speak with your agent about replacement cost options. DP-2: Broad FormThe dwelling fire policy broad form is also a “named perils” policy and covers the same perils as the basic form, with additional coverages such as:
Unlike the DP-1 form, the DP-2 form typically settles claims on a replacement cost basis. Loss of rent coverage, additional living expenses, collapse, debris removal, and improvements, alterations and additions may also be included with a DP-2 policy. DP-3: Special FormThe DP-3 form is the most comprehensive dwelling fire coverage available. It is an “open perils” or “all risk” policy, which means real property (dwelling and other structures) will be covered for all types of damage, except exclusions named in the policy. However, damaged personal property (all the items inside the dwelling and other structures) is covered on a “named perils” basis. DP-3 form exclusions may vary, but will typically be some or all of the following:
This is not a complete list of policy exclusions. It is important to review your Dwelling policy to understand exactly what your policy will and will not cover. There also may be optional Endorsements available, to include other specific coverages. If you have questions about Dwelling policies, talk with your insurance agent or insurance company. You may also contact the North Carolina Department of Insurance, Consumer Services Division at: 1-855-408-1212.
An insured has an $80,000 dwelling policy with a $500 deductible. In addition to the house, the property includes a detached garage, storage shed, and an artist's studio. During a thunderstorm, the garage and storage shed are damaged by lightning. The loss is $3,000 to the garage and $1,000 to the shed. What amount is covered by the policy?A) 3000B) 4000C) 3500 D) 0
Answer: C Coverage B--Other Structures provides coverage for real property located on the described location and separated from the dwelling by clear space. Up to 10% of Coverage A (in this case $8,000) is included for other structures. Lightning is a covered peril so the policy would pay $3,500 (the $4,000 loss less the $500 deductible).
An insured has a $40,000 dwelling special form (DP-3) policy. After hosting an afternoon party, the insured discovers that the family's credit cards and ATM cards are missing. If the cards are used, what coverage is provided under Coverage C-Personal Property and why?A) $0. Coverage C excludes coverage for credit cards.B) $0. Coverage C provides insurance only for the insured's personal property.C) $4,000. Coverage C provides up to 10% of the dwelling amount for loss of personal property. D) $20,000. Coverage C provides up to 50% of the dwelling amount for loss of personal property.
Answer: A The dwelling forms exclude coverage for accounts, bank notes, bills, coins, securities, animals, aircraft, motor vehicles and equipment, watercraft, and data.
An insured suffers a covered loss to some rental property that forces the tenant to move to another location. Under which section of the dwelling policy would the insured receive payment during the time the property is being repaired?A) Coverage D--Fair Rental Value.B) Coverage A--Dwelling.C) Coverage B--Other Structures. D) Coverage E--Additional Living Expense.
Answer: A Coverage D--Fair Rental Value is the amount payable to an insured homeowner for loss of rental income due to damage that makes the premises uninhabitable. Payment is made for the shortest time required to repair or replace the part of the rental location.
An insured has a dwelling policy (DP-3 special form) for $50,000. After a covered fire loss, the insured moves to a local hotel while repairs are being made to the house. While staying in the hotel's penthouse suite, the insured uses room service, always choosing the most expensive food and wine. The entire stay costs $12,000. How much of that amount will the policy cover?A) $5,000.00B) $12,000.00C) $10,000.00 D) $0.00
Answer: CUnder the special form dwelling policy, up to 20% of Coverage A may be applied to either or both fair rental value and additional living expense as an additional amount of insurance. In this case, the insured is covered for up to $10,000 (20% of the $50,000 Coverage A amount). The additional $2,000 ($12,000 - $10,000) is the insured's out-of-pocket expense. Insurance is intended to make the insured whole after the loss, not to enrich the insured.
All of the following statements are true regarding an insured's duties to the insurer after a loss to an insured dwelling EXCEPT:A) undamaged property must be protected from further loss.B) the insurance company must be notified of the loss.C) the damaged property must be appraised. D) the insured must furnish proof of loss.
Answer: C The property needs to be appraised only if the insured and the insurer cannot agree on the amount or value of the loss. The conditions section of the policy spells out, in detail, both the insurer's and the insured's rights and duties. If the insured does not comply with these conditions, the insurer may be released from its obligation to pay for a loss.
An insured has a $60,000 special form (DP-3). When a covered loss in the amount of $10,000 damages the attached garage, how much of that amount is paid under the Coverage B-Other Structures?A) $6,000.00B) $10,000.00C) $0.00 D) $1,000.00
Answer: C The attached garage is considered part of the dwelling so the $10,000 is paid under Coverage A-Dwelling. Real property located on the described property and separated from the dwelling by clear space is covered by Coverage B-Other Structures.
Which one of the following types of property CANNOT be covered by a dwelling policy?A) Row houses.B) Three apartment dwellings.C) Farm dwellings. D) Mobile homes on permanent foundations.
Answer: C Properties eligible for dwelling policies include mobile homes on permanent foundations, townhouses, row houses, and dwellings containing up to four apartments. Farm dwellings are not covered by dwelling or homeowners policies. They must be insured under the farm program policy.
A dwelling policy can be used to insure all of the following EXCEPT:A) lake cabins.B) apartment building with 6 units.C) rental homes. D) duplexes.
Answer: BA dwelling policy may be used to insure a building with up to four apartments.
Which of the following statements about dwelling policies is CORRECT?A) Theft can be covered under an unendorsed dwelling policy.B) Liability coverage is automatically included in a dwelling policy.C) The building must be occupied to be insured. D) They may be used to insure rental homes.
Answer: D The dwelling policy is used by owners who otherwise do not qualify for homeowners policies, and including homes that are rented to tenants instead of owner-occupied. Theft and liability coverage must be added to the policy by endorsement. Homes that are under construction (i.e., vacant) are eligible for dwelling coverage.
Which of the following statements about the dwelling basic form (DP-1) is CORRECT?A) The DP-1 provides coverage for appurtenant structures.B) The DP-1 is an open-perils policy.C) The policy covers fire, lightning, and all types of explosion.D) The policy is designed to provide broad coverage for personal property.
Answer: A The policy provides coverage for appurtenant (other) structures. The DP-1 policy is a named perils policy that provides coverage only for perils specifically named in the policy: fire, lightning, and internal explosion. The definition of internal explosion does not include electric arcing, breakage of water pipes or pressure devices, or loss by explosion of steam pipes or boilers. Coverage for personal property is limited to a declared value, and not all items may be insured.
A dwelling policy can insure all of the following types of personal property EXCEPT:A) sailboats.B) motorized wheelchairs.C) lawnmowers. D) furniture.
Answer: A Rowboats and canoes are the only types of watercraft that may be covered under a dwelling policy.
An insured has a $70,000 dwelling policy (DP-1 basic) with a $500 deductible. While the insured is on vacation, burglars enter the house and steal several items. The total loss is estimated to be $5,000. How much of that loss will be paid under the policy?A) $0.00B) $4,500.00C) $5,000.00 D) $5,500.00
Answer: A The DP-1 basic is a named peril policy that provides coverage only if a loss is caused by one of the perils specifically named or identified in the policy. If a peril is not listed, it is not covered. The DP-1 basic covers only fire, lightning, and internal explosion. Burglary is not listed as a named peril and is not covered.
The following perils may be insured against under a basic dwelling policy EXCEPT:A) lightning.B) vandalism and malicious mischief.C) flood. D) fire.
Answer: CWater damage, including flooding, is not a covered peril under a dwelling policy. Fire and lightning are covered perils on the basic form, and vandalism and malicious mischief is available for an additional premium.
In the dwelling forms, damage from vandalism is not covered if the building has been vacant for more than:A) 30 consecutive days.B) 90 consecutive days.C) 60 consecutive days.D) 14 consecutive days.
Answer: CVandalism damage to a building that has been vacant for more than 60 consecutive days is excluded.
The dwelling policy will provide how much additional coverage for a fire department service charge?A) $750.00B) $1,000.00C) $500.00D) $250.00
Answer: CDwelling policies provide up to $500 for fire department service charges, the same amount that the homeowners policies provide.
Wilson owns a 4-family apartment building. Which dwelling form(s) would provide coverage against building damage caused by the freezing of plumbing, heating, air conditioning, and sprinkler systems?A) DP-1.B) DP-1 and DP-2.C) DP-3 only.D) DP-2 and DP-3.
Answer: DBoth the DP-2 and DP-3 would cover freezing of plumbing, heating, air conditioning, and sprinkler systems.
Damage caused by burglars is excluded under which of the dwelling forms?A) Broad Form.B) Special Form.C) All forms exclude damage caused by burglars.D) Basic Form.
Answer: DThe Basic Form is the most restrictive of the three dwelling forms. The only perils insured against are fire, lightning, and internal explosion. Burglary, vandalism, and mischief are not listed as covered perils.
A DP-2 policy would cover losses from all of the following perils EXCEPT:A) falling objects.B) weight of ice, snow or sleet.C) damage by burglars. D) infestation of insects.
Answer: DThe DP-2 is a named-perils policy, meaning that only those perils specifically listed are covered. Infestation of insects is not a listed peril.
All of the following perils are covered under the DP-2 Broad Form EXCEPT:A) earthquake.B) falling objects.C) freezing of pipes. D) loss caused by fireplace smoke.
Answer: ADamage caused by earth movement is not covered under any of the dwelling forms.
The greatest difference between the dwelling basic form (DP-1) and the broad form (DP-2) is that the DP-2 automatically includes coverage for:A) earthquake.B) vandalism and malicious mischief (VMM).C) fire and lightning. D) flood.
Answer: B The DP-1 basic form includes only fire, lightning, and internal explosion. Other coverages must be added by endorsement. Flood and earthquake are excluded on all DP forms.
Of the dwelling forms, which one of the following provides the broadest coverage?A) Specific.B) Premier.C) Standard. D) Special.
Answer: DThe DP-3 special form provides the broadest coverage of the three dwelling forms. It provides open peril coverage for buildings and related structures and named peril coverage for personal property.
A property owner wants to insure both the rental property and any of the tenant's belongings if they are stolen. Which policy would you recommend and why?A) DP-3 special form and a separate tenant's policy to cover personal property.B) DP-1 basic form because the property owner needs only named peril coverage.C) DP-2 broad form because it automatically provides the extended coverage endorsement (ECE).D) DP-3 special form because it includes coverage for personal property.
Answer: A The dwelling policies do not provide coverage for the rental property owner for property stolen from a rental unit because the property is owned by the tenant. The tenant must purchase a tenant's or renter's (HO-4) policy that protects the holder against accidents, damages, and losses that occur in a rented residence. Renter's insurance provides coverage both for the insured's belongings and for liability that may result from an accident in the insured's home.
The special form (DP-3) covers the dwelling and other structures for:A) broad form perils only.B) extended coverage perils.C) open perils. D) named perils.
Answer: CThe DP-3, the special form, is an open perils policy. This type of insurance pays for all risks of direct physical loss to the insured property except for losses specifically excluded in the policy. The open perils policy contrasts with the named peril policy, which covers only the losses spelled out in the policy.
Coverage E in the dwelling policy provides coverage for:A) personal liability.B) medical payments.C) additional living expense. D) fair rental value.
Answer: CCoverage E applies to additional living expenses under the dwelling policy forms. Additional living expenses includes the increased expenses that must be incurred for the occupants to maintain their normal lifestyles and standards of living.
How does the dwelling policy provide theft coverage?A) It must be added by endorsement.B) It is automatically included in the policy.C) It is only included in the DP-2 and DP-3. D) It is included in the DP-3 only.
Answer: A Coverage for theft is provided by adding an endorsement to the policy.
An insured lives in a house covered by an $80,000 special form (DP-3) policy. While the insured is on vacation, someone breaks into the house and steals $5,000 in electronic equipment. The damage to the door is estimated at $800. What coverage is provided by the DP-3 policy?A) $800.00B) $0.00C) $5,000.00 D) $5,800.00
Answer: ATheft coverage is not automatically included in dwelling policies; however, damage by burglars is included under the Vandalism and Malicious Mischief peril.
An insured has an unendorsed $50,000 special form (DP-3) dwelling policy. The insured's dog bites a child, and the parents sue the insured for $500 for the child's medical bills, $1,000 for rabies shots, and $5,000 for pain and suffering. How much will the policy pay?A) $500.00B) $1,500.00C) $6,500.00 D) $0.00
Answer: D The insured has no coverage because the policy is unendorsed and liability coverage is not automatically included in dwelling policies. Coverage is available by adding a personal liability supplement to the policy. Liability coverage can be added for a residence premise as long as the insured resides in at least one of the family units; the residence premise can be a 3- or 4-family dwelling. Coverage is provided for bodily injury and property damage. Medical payments coverage is also included in the liability supplement and will pay the necessary medical expenses for bodily injury of others when caused by action of the insured.
An insured purchased a dwelling policy with $40,000 of coverage. The insured also purchased an automatic increase in insurance endorsement that increases the face amount of the policy by 4% each year. What will the coverage amount be when the insured pays the renewal premium for the third year the policy is in effect?A) $40,000.00B) $41,600.00C) $44,995.00 D) $43,264.00
Answer: DThe insured may request an automatic increase in insurance (or inflation guard) endorsement be added to a dwelling policy to increase periodically the face amount of insurance of the dwelling and other policy coverage by a specified percentage. An inflation guard endorsement is one way to avoid becoming underinsured as a result of inflation, which over time can increase the cost to replace a home. The increase in coverage is applied pro rata during the policy period. The calculations for this particular question are as follows: first year of coverage = $40,000; second year of coverage = $41,600 ($40,000 x 1.04); third year of coverage = $43,264 ($41,600 x 1.04).
The limit of liability under the dwelling under construction endorsement is provisional. If a loss occurs, the amount paid will be based on the:A) actual value of the property.B) actual amount of the loss.C) completion date. D) face amount of the policy.
Answer: CThe dwelling under construction endorsement is used to provide provisional limits of liability for dwellings under construction, on the basis of the intended completion or occupancy date. |
Under the basic dwelling form, when is damage caused by vandalism included as covered peril?
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