3.2 Dwelling Coverages A-E and Other Coverages

The Dwelling Coverage Letters

The Dwelling forms organize property coverage into five lettered coverages plus a set of Other Coverages (additional coverages). Knowing each letter, what it insures, and its default percentage relationship to Coverage A is core exam material.

Coverage A — Dwelling

Coverage A is the anchor limit. All percentage-based coverages flow from it. On DP-2 and DP-3, Coverage A settles on Replacement Cost subject to the 80% coinsurance condition; on DP-1 it settles on ACV. Building materials and supplies on or adjacent to the premises (e.g., for construction) are insured under Coverage A.

Coverage B — Other Structures

Detached structures used for residential (non-business) purposes. The default 10%-of-A limit is additional insurance on current editions (it does not erode Coverage A). A detached garage rented to a tenant or used for business may lose this coverage absent an endorsement.

Coverages D and E — Loss of Use

Coverage D (Fair Rental Value) reimburses the landlord-insured for lost rental income when a covered peril makes the rented portion uninhabitable, minus expenses that do not continue. Coverage E (Additional Living Expense) pays the owner-occupant the increase in living costs to maintain a normal standard of living elsewhere. On DP-2 and DP-3, D and E together share the 20%-of-A pool. On DP-1, loss-of-use is more restricted (Fair Rental Value only, and as a portion of Coverage A rather than added). Both D and E require an underlying covered loss and respond only for the time reasonably required to repair or relocate.

Other (Additional) Coverages

The DP-2 and DP-3 include several Other Coverages, with sublimits that recur on the exam:

• Other Structures — already counted as Coverage B percentage.
• Debris Removal — included; may be additional once the limit plus debris exceeds the Coverage A limit (extra 5% available).
• Improvements, Alterations, and Additions — for a tenant-insured, up to 10% of Coverage C.
• Trees, Shrubs, and Plants — up to 5% of Coverage A, with a per-item cap (commonly $500 per tree/shrub/plant), for named perils only (fire, lightning, explosion, riot, aircraft, vehicles not owned by occupant, vandalism, theft).
• Reasonable Repairs, Property Removed (covered against direct loss from any cause while removed, up to 5 days), Fire Department Service Charge (commonly $500), and Worldwide Coverage (personal property anywhere, 10% of Coverage C).

Worked Example — Coinsurance on a DP-3 Loss

An insured carries $160,000 Coverage A on a dwelling with a replacement cost of $250,000. The 80% coinsurance condition requires a limit of at least 0.80 × $250,000 = $200,000. A $40,000 partial loss is settled by the coinsurance formula:

Payment = (Carried ÷ Required) × Loss − Deductible

= ($160,000 ÷ $200,000) × $40,000 = 0.80 × $40,000 = $32,000, then subtract the deductible (say $1,000) = $31,000.

Because the insured carried only 80% of the required amount, they are penalized: the policy pays 80% of the loss above the deductible, not the full replacement cost. Had Coverage A equaled or exceeded $200,000, the loss would settle at full RCV (limited by the policy limit) less the deductible.

How the Percentages Interact on the Exam

The exam expects you to compute coverage limits and loss-of-use caps directly from Coverage A. Because B, D, and E are stated as percentages of A, raising Coverage A automatically raises those derived limits. A useful worksheet for any DP-2/DP-3 with Coverage A = $200,000:

Coverage C and Replacement Cost on Contents

Coverage C is optional and frequently omitted on landlord policies, since tenants insure their own belongings. When written, contents settle on ACV by default. A Personal Property Replacement Cost endorsement upgrades contents to RCV but excludes items that cannot realistically be replaced new — antiques, fine art, memorabilia, and articles not maintained in good condition — which continue to settle on ACV.

Loss of Use Mechanics

Loss of Use (D and E) responds only when a covered peril makes the premises uninhabitable, and only for the time reasonably required to repair, rebuild, or permanently relocate. It is not capped by a strict time limit on the DP forms the way some HO forms apply a 12-month or percentage limit; instead the 20%-of-A pool and "reasonable time" standard govern. Fair Rental Value (D) deducts expenses that do not continue during the period of restoration, so the landlord is made whole only for net lost rent.