3.2 Dwelling Coverages A-E and Other Coverages
Key Takeaways
Coverage A=Dwelling, B=Other Structures, C=Personal Property, D=Fair Rental Value, E=Additional Living Expense
Coverage B is automatically 10% of Coverage A as additional insurance; using it does NOT reduce the dwelling limit
Coverages D and E together are limited to 20% of Coverage A on DP-2/DP-3 (10% on DP-1, and DP-1 has D only, no E by default)
Coverage C is optional and often set as a percentage of A; on a rental, the landlord usually carries little or no Coverage C
Dwelling RCV settlement requires insuring to at least 80% of replacement cost or a coinsurance-style penalty applies
Quick Answer: A Dwelling policy is organized into lettered coverages. A = Dwelling, B = Other Structures, C = Personal Property, D = Fair Rental Value, and E = Additional Living Expense. Coverage B is automatically 10% of Coverage A as additional insurance. Coverages D and E combined are capped at 20% of Coverage A on DP-2/DP-3. To collect full replacement cost on the dwelling, the insured must carry at least 80% of the dwelling's replacement cost.
The Five Lettered Coverages
| Cov. | Name | What It Insures | Default Limit Relationship |
|---|---|---|---|
| A | Dwelling | The house, attached structures, built-in appliances, materials on premises | Stated limit (the foundation amount) |
| B | Other Structures | Detached garage, fences, sheds, in-ground pool | 10% of A (additional insurance) |
| C | Personal Property | Insured's contents; on a rental this is the owner's, not tenant's | Optional; chosen by insured |
| D | Fair Rental Value | Lost rent when a covered loss makes a rented portion uninhabitable | 10% of A (DP-1) / part of 20% of A (DP-2/3) |
| E | Additional Living Expense | Extra costs when the insured must live elsewhere | Combined with D under 20% of A on DP-2/3 |
Key trap: DP-1 does NOT include Coverage E (ALE) by default — it provides only Coverage D (Fair Rental Value) at 10% of A. ALE (Coverage E) appears on DP-2 and DP-3, where D and E share a combined 20% of A pool.
Coverage B — Other Structures (worked example)
Coverage B is additional insurance equal to 10% of Coverage A, meaning a Coverage B loss does not erode the dwelling limit.
- Coverage A limit = $300,000 → Coverage B available = $30,000.
- A detached garage worth $25,000 burns down. The insured collects up to $25,000 under Coverage B, and the $300,000 dwelling limit stays fully intact.
Note: structures rented to others or used for business are generally excluded from Coverage B unless endorsed.
Coverages D and E — Loss of Use (worked example)
On DP-2/DP-3, Fair Rental Value (D) and Additional Living Expense (E) share a combined 20% of Coverage A. With Coverage A = $300,000, the combined D+E pool = $60,000.
- A fire forces the owner-occupant out for 4 months. Reasonable extra living costs (hotel, meals above normal) of $3,500/month = $14,000 total — fully payable under Coverage E since it is well within the $60,000 pool.
- For a landlord, lost rent of $2,000/month for the repair period is paid under Coverage D, capped by that same 20% pool.
Trap: Loss of Use (D/E) pays only for the time reasonably required to repair or replace, not an arbitrary period the insured chooses to stay out.
A DP-3 policy has Coverage A of $250,000. A covered fire damages both the dwelling and the detached workshop, and forces the owner to live elsewhere. What is the MOST available for the detached workshop under Coverage B?
$12,500 (5% of Coverage A)
$25,000 (10% of Coverage A)
$50,000 (20% of Coverage A)
Unlimited up to the Coverage A limit
The 80% Replacement-Cost Requirement (coinsurance-style)
To settle a dwelling loss at full Replacement Cost (RCV) on DP-2/DP-3, the insured must carry coverage equal to at least 80% of the dwelling's replacement cost at the time of loss. Carry less, and the recovery is reduced by the familiar coinsurance formula:
Payment = (Carried ÷ Required) × Loss − Deductible, but never more than ACV and never less than the ACV settlement.
Worked numeric
- Dwelling replacement cost = $400,000; required = 80% = $320,000.
- Insured carries only Coverage A = $240,000.
- A partial loss of $100,000 occurs; deductible = $1,000.
- Ratio = $240,000 ÷ $320,000 = 0.75.
- Payment = (0.75 × $100,000) − $1,000 = $74,000 (subject to the ACV floor).
Had the insured carried at least $320,000, the loss would have been paid at full RCV ($100,000 − $1,000 = $99,000). The $25,000 shortfall in this example is the coinsurance penalty the insured effectively self-insures.
Other Coverages
Dwelling forms also grant several Other Coverages (not extra limits unless stated): Debris Removal, Reasonable Repairs, Property Removed (covered against direct loss for 5 days while being moved from a threatened peril), Trees/Shrubs/Plants (DP-2/3, limited to 5% of A and a per-item cap), Fire Department Service Charge (e.g., $500), and Worldwide coverage on personal property (a percentage of Coverage C).
Coverage C — Personal Property Nuances
Coverage C is optional and the insured chooses the limit; on a landlord's policy it is often small or zero because the tenant owns the contents. When Coverage C is purchased:
- Property is covered at the described location and, up to 10% of the Coverage C limit, while temporarily away (anywhere in the world).
- DP forms apply special internal sub-limits similar to HO — for example, caps on money, securities, jewelry theft, and business property.
- Tenant's improvements can be insured under Coverage C up to 10% of Coverage C as additional insurance when the insured is a renter who made the improvements.
Reading a Loss-Settlement Problem on the Exam
Valuation questions follow a predictable sequence. Work them in this exact order:
- Identify the form — DP-1 (ACV) or DP-2/DP-3 (RCV subject to 80%).
- Compute the 80% requirement = 0.80 x replacement cost.
- Form the ratio = amount carried ÷ amount required (cap the ratio at 1.0).
- Apply payment = (ratio x loss) − deductible.
- Floor check — the insured never recovers less than the ACV settlement.
Second worked numeric (no penalty)
- Replacement cost $500,000; required 80% = $400,000; carried $400,000 (exactly meets requirement).
- Loss $120,000, deductible $2,500.
- Ratio = 1.0, so payment = $120,000 − $2,500 = $117,500 at full replacement cost. Meeting the 80% threshold removes the coinsurance penalty entirely — the single most valuable thing a producer can confirm at the point of sale.
A home has a replacement cost of $500,000. The DP-3 policy carries Coverage A of $300,000 with a $1,000 deductible. A covered partial loss of $60,000 occurs. Using the 80% requirement, how much does the insurer pay (ignoring the ACV floor)?
$44,000
$59,000
$45,000
$60,000
Sections you finish are checked off in the contents.