Dwelling and Commercial Property Insurance

Dwelling Policies

Dwelling policies insure properties not eligible for homeowners insurance, primarily rental properties and vacation homes.

DP-1: Basic Form

Coverage:

• Named-peril coverage for fire, lightning, and internal explosion only
• Actual cash value settlement
• No liability coverage included
• Least expensive dwelling policy

DP-2: Broad Form

Coverage:

• Broader named-peril coverage (similar to HO-2)
• Optional replacement cost coverage
• Liability coverage available by endorsement
• More comprehensive than DP-1

DP-3: Special Form

Coverage:

• Open-peril coverage on buildings
• Named-peril coverage on contents
• Most comprehensive dwelling policy
• Similar to HO-3 but for rental properties

When to Use Dwelling Policies

Commercial Property Insurance

Massachusetts businesses protect property through Commercial Property Policies (CPP) or Businessowners Policies (BOP).

Commercial Property Coverage Form (CPP)

Building and Personal Property Coverage Form (BPP)

Standard commercial property coverage includes:

Coverage A: Building

• Structure and permanently attached fixtures
• Outdoor fixtures (signs, fences)
• Personal property owned used to maintain building
• Additions and extensions

Coverage B: Business Personal Property

• Furniture and equipment
• Inventory and stock
• Improvements and betterments (if tenant)
• Personal property of others (bailee coverage)

Coverage C: Personal Property of Others

• Customer property in your care, custody, or control
• Optional coverage requiring specific limit

Covered Causes of Loss

Commercial property offers three cause-of-loss options:

Exam Tip: Commercial property special form provides the broadest coverage. Most Massachusetts businesses choose special form for buildings and business personal property.

Valuation Methods

Replacement Cost

Definition: Cost to replace property with new property of similar kind and quality

Requirements:

• Must insure to at least 80% of replacement value
• No deduction for depreciation
• More expensive premium
• Recommended for most properties

Actual Cash Value (ACV)

Definition: Replacement cost minus depreciation

Formula: ACV = Replacement Cost - Depreciation

When Used:

• Older properties where replacement cost excessive
• Lower premium option
• Some property types mandated by insurers

Coinsurance

What is Coinsurance?

Coinsurance - A provision requiring the insured to carry coverage equal to a specified percentage of property value or face a penalty at loss.

Standard Coinsurance Formula

If Property Underinsured:

Amount Paid = (Amount of Insurance Carried ÷ Amount of Insurance Required) × Loss - Deductible

Example

Calculation:

• Insurance Required: $1,000,000 × 80% = $800,000
• Insurance Carried: $600,000
• Payment: ($600,000 ÷ $800,000) × $200,000 = $150,000
• Insured receives only $150,000 (plus pays deductible)

Exam Tip: Coinsurance penalties apply when property is underinsured below the coinsurance percentage. Most commercial property policies have 80% coinsurance requirements.

Business Income Coverage

Coverage Provided

Business Income (and Extra Expense) coverage pays:

• Net income that would have been earned
• Continuing normal operating expenses
• Extra expenses to minimize business interruption
• Coverage during restoration period

Key Features

Business Income Calculation

Business Income = Net Profit + Continuing Expenses

Continuing Expenses include:

• Payroll (if insured with coverage)
• Rent or mortgage payments
• Utilities
• Insurance premiums
• Loan payments

Exam Tip: Business income coverage requires 72-hour waiting period and covers loss during the restoration period. Know that extra expenses to minimize interruption are covered.