3.2 Dwelling Coverages A-E and Other Coverages

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

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.

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:

1. Identify the form — DP-1 (ACV) or DP-2/DP-3 (RCV subject to 80%).
2. Compute the 80% requirement = 0.80 x replacement cost.
3. Form the ratio = amount carried ÷ amount required (cap the ratio at 1.0).
4. Apply payment = (ratio x loss) − deductible.
5. 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.