3.2 Dwelling Coverages A-E and Other Coverages

The Five DP Coverages

The Dwelling Property forms use lettered coverages. Coverage A - Dwelling insures the residence and attached structures and materials on premises used to build them. Coverage B - Other Structures insures detached garages, sheds, and fences. Coverage C - Personal Property is optional and insures household contents. Coverage D - Fair Rental Value replaces lost rent. Coverage E - Additional Living Expense (ALE) pays the extra cost of living elsewhere when the insured occupies the dwelling.

How the limits relate

In the DP program, several coverages are automatically provided as a percentage of Coverage A, rather than as separately chosen limits.

Worked example: Coverage B and loss of use

Assume Coverage A = $300,000 on a DP-3. Coverage B provides an additional 10%, or $30,000, on detached structures. Because it is additional, a total dwelling loss does not reduce the other-structures limit.

For loss of use, DP-3 provides 20% of Coverage A combined for Coverage D and E, equaling $60,000. If a covered fire forces tenants out and the owner loses rent while also incurring extra costs, both draw from this $60,000 shared pool.

Other Coverages

The DP forms append several Other Coverages that apply without reducing the main limits unless stated. Common ones include:

• Debris Removal - reasonable cost to remove debris of covered property after a covered loss.
• Reasonable Repairs - cost to protect property from further damage.
• Property Removed - covered against any peril for up to 5 days while removed to protect it.
• Trees, Shrubs, and Other Plants - limited to 5% of Coverage A for named perils such as fire and vandalism (not wind), with a sub-limit (commonly $500) per tree, shrub, or plant.
• Fire Department Service Charge - up to $500, no deductible applied.

Coverage A in detail and the coinsurance link

Coverage A insures the dwelling at the described location, structures attached to the dwelling, and building materials/supplies on or next to the premises used to construct, alter, or repair the dwelling. It excludes land. Because DP-2 and DP-3 settle the dwelling on a replacement-cost basis, the 80% coinsurance condition applies: the insured must carry at least 80% of full replacement cost at the time of loss to collect replacement cost in full; otherwise a coinsurance penalty applies (see the coinsurance section for the formula).

Worked example: ACV vs. replacement cost on a partial loss

A DP-1 dwelling (ACV settlement) has a kitchen fire causing $20,000 of damage to cabinets that are 50% depreciated. The insurer pays roughly $20,000 minus depreciation = about $10,000 (ACV), and the owner absorbs the depreciation. The same loss on a DP-3 (replacement cost, adequately insured to 80%) pays the full $20,000 to replace the cabinets with like kind and quality, subject only to the deductible. This single contrast - ACV on DP-1 versus replacement cost on DP-2/DP-3 - is among the most frequently tested dwelling concepts.

Coverage C off-premises and special limits

When Coverage C is purchased, up to 10% of the Coverage C limit extends to personal property usually located at another residence (with a minimum dollar amount). The DP program does not include the dollar special limits found in Homeowners (for jewelry, money, securities), because theft is not even a base peril; a landlord rarely insures tenants' contents, and tenants must buy their own contents coverage.

Fair Rental Value vs. Additional Living Expense

The two loss-of-use coverages serve different occupants and are commonly confused on the exam. Coverage D - Fair Rental Value reimburses a landlord for the rent lost while a covered loss makes a rented portion of the dwelling uninhabitable, minus expenses that do not continue (such as utilities the landlord stops paying). Coverage E - Additional Living Expense reimburses an owner-occupant for the extra cost of living elsewhere - the difference between normal living costs and the higher temporary costs - while the home is being repaired.

Both are limited to the shortest time required to repair or replace, or for the household to relocate, and both draw from the same percentage-of-Coverage-A pool (10% on DP-1, 20% on DP-2/DP-3).

Worked loss-of-use example

Return to the $300,000 DP-3 with a 20% combined Coverage D and E pool of $60,000. A kitchen fire forces a tenant out for four months. The owner loses $1,800 per month in rent ($7,200 of Fair Rental Value) and, because the owner also occupies an upstairs unit, incurs $1,000 per month in extra living costs ($4,000 of ALE). The combined $11,200 is well within the $60,000 pool, so both are paid in full. Had the loss dragged on long enough to approach $60,000, the shared pool - not separate limits - would cap the total, which is why producers verify the loss-of-use percentage matches the client's rental income and occupancy pattern.