3.2 Dwelling Coverages A-E and Other Coverages

The Five Primary Coverages

The dwelling forms organize property coverage into lettered parts. Coverages A and B are buildings; C is contents; D and E are the indirect (loss-of-use) coverages.

Key distinctions: Coverage B is normally an additional amount (it does not erode Coverage A) and runs 10% of A as a default that can be increased. Coverage C reflects the contents limit the insured buys — on a rental written for the landlord, Coverage C may be low or even zero because the tenant's property is not insured.

Coverage D vs. Coverage E

This pair is a favorite trap. Both are loss-of-use coverages but they apply to different parties:

• Coverage D – Fair Rental Value: pays the landlord/owner the rental income lost while the damaged portion cannot be rented. Only the rental value is paid, less expenses that do not continue.
• Coverage E – Additional Living Expense: pays an owner-occupant the extra expense above normal living costs to maintain the household's standard of living while the home is being repaired.

For a non-owner-occupied rental, Coverage D is the relevant loss-of-use coverage; for an owner who lives in the dwelling, Coverage E applies. Both are limited to the time reasonably required to repair or replace, not an arbitrary policy term.

Other Coverages (Automatic Extensions)

The dwelling forms add several extensions automatically. The frequently tested ones include:

• Debris removal of covered property after a covered loss
• Reasonable repairs the insured makes to protect property from further damage
• Trees, shrubs, and other plants — commonly up to 5% of Coverage A, with a per-item cap (e.g., $500), only for named perils such as fire, lightning, explosion, vandalism, and not for wind or disease
• Fire department service charge — a small additional amount (often $500) with no deductible
• Property removed — covers property against direct loss for a limited period (e.g., 5 days) while removed to protect it from a covered peril

Worked Example: Coinsurance and ACV

A DP-3 dwelling has a replacement cost of $300,000 and carries Coverage A of $210,000. The 80% coinsurance requirement is $240,000. A partial fire loss of $50,000 occurs.

Because the insured carried less than 80%, the penalty formula applies:

Payment = (Carried / Required) x Loss
        = ($210,000 / $240,000) x $50,000
        = 0.875 x $50,000
        = $43,750  (less any deductible)

Now compare a DP-1 that settles on ACV. The same fire damages a 20-year-old roof section costing $20,000 to replace, with 40% depreciation:

ACV = Replacement cost - Depreciation
    = $20,000 - (40% x $20,000)
    = $20,000 - $8,000
    = $12,000  (less deductible)

How the Limits Interact

Candidates frequently confuse which coverages are additional amounts and which are part of the Coverage A limit. On the standard dwelling forms, Coverage B (Other Structures) and the loss-of-use coverages D and E are stated as percentages of Coverage A but provided as additional insurance — paying a Coverage B loss does not reduce the dwelling limit available for the house.

By contrast, the Other Coverages extensions (debris removal, trees/shrubs) generally apply within the applicable limit or carry their own internal sublimit, so they can erode the amount left for the direct loss. Read each extension carefully: debris removal is normally included within the limit, while the trees-and-shrubs allowance is an additional small percentage with a per-plant cap.

The insured can usually increase the default percentages for an added premium — for example, raising Coverage B above the 10% default for a property with a large detached garage, or raising Coverage D when a multi-family rental generates substantial monthly income that a long repair period would interrupt.

Settlement Basis and the Deductible

The deductible applies once per occurrence to the covered property loss after the settlement amount is determined. In the coinsurance example above, the $43,750 figure is reduced by the policy deductible; in the ACV example, the $12,000 is likewise net of the deductible. Examiners like to layer a deductible onto a coinsurance question, so always compute the coinsurance or ACV figure first and subtract the deductible last.

Also distinguish a flat dollar deductible (typical for fire and most perils) from a percentage windstorm or hurricane deductible, which some coastal states require. A 2% wind deductible on a $300,000 Coverage A home equals $6,000 — far larger than a $1,000 all-other-perils deductible — and it applies only to the named wind peril.

Exam tip: On DP-2/DP-3, replacement cost on the building is conditioned on carrying at least 80% of replacement cost at the time of loss. Fall below it and the coinsurance penalty applies; DP-1 always pays ACV regardless of the limit carried. Compute coinsurance/ACV first, then subtract the deductible.