3.2 Dwelling Coverages A-E and Other Coverages
Key Takeaways
- Coverages A-E: Dwelling, Other Structures, Personal Property, Fair Rental Value, Additional Living Expense.
- Coverage B is automatically 10% of Coverage A and is additional insurance, not a reduction of A.
- Combined Coverage D + E is 20% of Cov A on DP-2/DP-3 but only 10% (and part of A) on DP-1.
- Replacement cost settlement on DP-2/DP-3 requires insuring to at least 80% of replacement value.
- Coinsurance penalty = (carried / required) x loss - deductible, never less than ACV.
The Five Coverage Letters
Every DP form organizes property protection under the same five lettered coverages. Coverages A-D are property; Coverage E is the only liability-style item and is loss-of-use related, not third-party bodily injury.
| Cov | Name | Insures |
|---|---|---|
| A | Dwelling | The structure on the residence premises, attached structures, materials/supplies for construction |
| B | Other Structures | Detached garages, fences, sheds — structures set apart by clear space |
| C | Personal Property | Contents owned/used by the insured; may be off-premises (10% limit) |
| D | Fair Rental Value | Lost rent when a covered peril makes a rented portion uninhabitable |
| E | Additional Living Expense | Extra costs for the insured to maintain normal living standard when the home is unfit |
The Automatic Percentage Limits
Coverages B, C, D, and E are written as a percentage of the Coverage A limit and are set automatically (the insured selects the A limit). Memorize these because exam math problems hinge on them.
- Coverage B (Other Structures): 10% of Cov A — this is an additional amount of insurance, not a sublimit that reduces A.
- Coverage C (Personal Property): varies by form — typically a percentage the insured chooses; often shown as a separate Declarations limit.
- Coverage D (Fair Rental Value) + Coverage E (ALE) combined: 20% of Cov A on DP-2/DP-3; 10% of Cov A on DP-1 (and on DP-1 the D/E amount is part of, not additional to, Coverage A).
Worked Example
A DP-3 has Coverage A = $300,000. Coverage B is automatically 10% = $30,000 of additional insurance. The combined Coverage D + E pool is 20% = $60,000. If a fire forces a 4-month displacement and fair rental value is $1,800/month plus $600/month ALE, the insurer pays $2,400 x 4 = $9,600, well within the $60,000 pool.
Other Coverages (Additional Coverages)
DP forms add a set of Other Coverages that apply over and above the lettered limits or carve out specific perils:
- Other Structures (rental to others — limited), Debris Removal, Improvements/Alterations (for tenants), Worldwide Coverage on personal property.
- Reasonable Repairs, Property Removed (covered 5 days against all perils while being protected from loss), Fire Department Service Charge (up to $500, no deductible).
- Collapse, Glass or Safety Glazing, and Trees, Shrubs, and Other Plants — typically 5% of Coverage A, max $500 per item (broad/special forms only; not for windstorm/hail damage to plants).
Coinsurance / Loss Settlement Trap
DP-2/DP-3 buildings are settled at replacement cost only if the insured carries at least 80% of full replacement value at the time of loss. Carry less and the penalty formula applies: payment = (carried / required) x loss, less deductible — but never less than ACV.
Worked Coinsurance Numeric
A dwelling has a replacement cost of $400,000. The required amount (80% coinsurance) is $320,000. The owner insures it for only $240,000. A partial fire loss costs $100,000 with a $1,000 deductible.
Payment = (Carried / Required) x Loss - Deductible = ($240,000 / $320,000) x $100,000 - $1,000 = 0.75 x $100,000 - $1,000 = $74,000
The insured eats the $25,000 shortfall as a coinsurance penalty plus the $1,000 deductible. Had the home been insured to at least $320,000, the payment would be $100,000 - $1,000 = $99,000.
ACV vs. Replacement Cost in Practice
The loss-settlement basis drives the entire claim payment, so know exactly when each applies.
- Actual Cash Value (ACV) = Replacement Cost - Depreciation. This is the DP-1 default and applies to certain perils (windstorm/hail on the building) even on broader forms. Depreciation reflects age and wear, so an older roof pays far less than a new one.
- Replacement Cost (RC) = the cost to repair or replace with like kind and quality, no deduction for depreciation, available on DP-2/DP-3 when the 80% coinsurance condition is satisfied.
When RC Reverts to ACV
Even on a DP-3, the policy pays only ACV until repairs are actually completed if the building loss exceeds a small threshold (commonly $2,500). The insured first collects ACV, completes the repair, then submits for the holdback (the depreciation amount) up to the RC value. Personal property under Coverage C is settled at ACV unless a separate Personal Property Replacement Cost endorsement is purchased.
Reading the Declarations Page
Exam scenarios hand you a Declarations page and ask you to compute a limit. Practice this sequence:
- Find the Coverage A limit (the only one the insured selects directly).
- Compute Coverage B = 10% of A (additional insurance).
- Note Coverage C as shown (often a separate dollar figure on dwelling forms because the owner of a rental may carry little or no contents).
- Compute the D + E pool = 20% of A (DP-2/DP-3) or 10% of A and part of A (DP-1).
- Confirm whether the 80% coinsurance condition is met before applying RC settlement.
A worked read: Cov A = $200,000 on a DP-3 means B = $20,000 additional, the D+E pool = $40,000, and a building loss settles at RC only if the home's full replacement value is no more than $250,000 (because $200,000 / $250,000 = 80%).
A DP-3 carries Coverage A of $250,000. The insured asks how much automatic coverage exists for a detached garage (Coverage B). What is the correct amount and how does it interact with Coverage A?
A home with $400,000 replacement cost is insured for $300,000 under a DP-3 (80% coinsurance required). A covered $120,000 loss occurs with a $1,000 deductible. What does the insurer pay?