3.2 Dwelling Coverages A-E and Other Coverages

Dwelling Coverages A Through E

The Dwelling program organizes its insuring agreements into five lettered coverages plus a set of Other Coverages. The lettered coverages and their built-in percentage relationships are heavily tested because the exam likes to ask how much is automatically available without a separate limit.

• Coverage A — Dwelling: the residence structure itself, including attached structures and built-in appliances/materials on the premises.
• Coverage B — Other Structures: detached structures (garage, shed, fence). Automatically 10% of Coverage A as an additional amount of insurance on DP-2/DP-3 (on DP-1 it is part of, not additional to, Coverage A).
• Coverage C — Personal Property: household contents. Off-premises personal property is limited to 10% of the Coverage C limit.
• Coverage D — Fair Rental Value: lost rental income while the dwelling is untenantable from a covered loss.
• Coverage E — Additional Living Expense (ALE): extra living costs when the insured cannot live in an owner-occupied dwelling.

The Percentage Relationships You Must Memorize

The exam routinely supplies a Coverage A limit and asks for the available amount under another coverage. Commit these to memory:

So on a DP-3 with $300,000 Coverage A, Other Structures provides $30,000 additional, and Coverages D and E together provide up to $60,000 (20% of $300,000). On a DP-1 with the same Coverage A, D + E would only be $30,000 (10%). These differences are classic exam fodder.

Other Coverages

Beyond the lettered coverages, the Dwelling forms add a list of Other Coverages that supply small additional or extended amounts automatically:

• Other Structures and Debris Removal (debris removal does not increase the limit unless the loss plus removal exceeds the limit, then an extra 5% is available).
• Improvements, Alterations and Additions for tenants (DP forms give tenants 10% of Coverage C for fixtures they installed).
• Worldwide Coverage for personal property (the 10%-of-C off-premises rule).
• Reasonable Repairs, Property Removed (covered 5 days while removed to protect from loss), Trees, Shrubs and Other Plants (typically 5% of Coverage A, with a per-item cap), and Fire Department Service Charge (commonly $500).
• Collapse (broad/special forms) and Glass or Safety Glazing Material.

Coinsurance and the 80% Rule on Replacement Cost

On DP-2 and DP-3, building losses settle at replacement cost only if the insured carries at least 80% of the dwelling's full replacement cost at the time of loss. If the limit is below 80%, the insurer pays the greater of (a) actual cash value of the damaged part, or (b) the Did/Should coinsurance proportion of the cost to repair or replace — and never more than the policy limit.

Example: a dwelling with $400,000 replacement cost insured for $280,000 (only 70%) suffers a $40,000 covered loss. The required amount is 80% × $400,000 = $320,000. The proportion is $280,000/$320,000 = 0.875, so the replacement-cost recovery is 0.875 × $40,000 = $35,000 (compared against ACV; the insurer pays the greater). Carrying to value avoids the penalty entirely — a frequent test point and a key consumer-counseling duty for producers.

Coverage C Special Limits and Off-Premises Rules

Even when personal property is covered, the Dwelling forms cap certain categories regardless of the overall Coverage C limit. Money, bank notes, and bullion carry a low sub-limit; securities, manuscripts, and evidences of debt are capped; and watercraft, trailers, and certain business property have their own restrictions. These special limits are not deductibles — they cap the recovery for that category even if the main Coverage C limit is far higher, so scheduling valuable items by endorsement is the cure.

The off-premises rule deserves repeating because it is so frequently tested: personal property usually at a residence other than the described location is covered for only 10% of the Coverage C limit. Property newly acquired at a new principal residence is not subject to this 10% cap for a limited window after the move, but property simply stored elsewhere is.

Loss Settlement Mechanics and Tenant Improvements

When a covered building loss occurs on a DP-2 or DP-3 and the 80% requirement is met, the insurer pays replacement cost without deduction for depreciation, up to the limit, but the insured must actually repair or replace to collect the full amount; otherwise settlement is on an ACV basis until repairs are made. DP-1 always pays ACV.

Tenants who install improvements, alterations, and additions at their own expense get a built-in 10% of Coverage C for those fixtures — important when a renter, not the landlord, paid for new cabinetry or flooring. Debris removal is included within the limit, but if a loss plus debris-removal cost together exhaust the limit, an additional 5% is available specifically for debris removal. These small automatic extensions are favorite exam details because candidates forget they exist.