7. Dwelling

A dwelling policy can be used to insure all of the following EXCEPT: A) duplexes. B) lake cabins. C) apartment building with 6 units. D) rental homes.

Answer: C A dwelling policy may be used to insure a building with up to four apartments.

All of the following perils are covered under the DP-2 Broad Form EXCEPT: A) freezing of pipes. B) loss caused by fireplace smoke. C) earthquake. D) falling objects.

Answer: C Damage caused by earth movement is not covered under any of the dwelling forms.

A property owner wants to insure both the rental property and any of the tenant's belongings if they are stolen. Which policy would you recommend and why? A) DP-1 basic form because the property owner needs only named peril coverage. B) DP-2 broad form because it automatically provides the extended coverage endorsement (ECE). C) DP-3 special form because it includes coverage for personal property. D) DP-3 special form and a separate tenant's policy to cover personal property.

Answer: D The dwelling policies do not provide coverage for the rental property owner for property stolen from a rental unit because the property is owned by the tenant. The tenant must purchase a tenant's or renter's (HO-4) policy that protects the holder against accidents, damages, and losses that occur in a rented residence. Renter's insurance provides coverage both for the insured's belongings and for liability that may result from an accident in the insured's home.

Which of the following statements about dwelling policies is CORRECT? A) Theft can be covered under an unendorsed dwelling policy. B) Liability coverage is automatically included in a dwelling policy. C) The building must be occupied to be insured. D) They may be used to insure rental homes.

Answer: D The dwelling policy is used by owners who otherwise do not qualify for homeowners policies, and including homes that are rented to tenants instead of owner-occupied. Theft and liability coverage must be added to the policy by endorsement. Homes that are under construction (i.e., vacant) are eligible for dwelling coverage.

In the dwelling forms, damage from vandalism is not covered if the building has been vacant for more than: A) 14 consecutive days. B) 30 consecutive days. C) 90 consecutive days. D) 60 consecutive days.

Answer: D Vandalism damage to a building that has been vacant for more than 60 consecutive days is excluded.

Wilson owns a 4-family apartment building. Which dwelling form(s) would provide coverage against building damage caused by the freezing of plumbing, heating, air conditioning, and sprinkler systems? A) DP-2 and DP-3. B) DP-1. C) DP-1 and DP-2. D) DP-3 only.

Answer: A Both the DP-2 and DP-3 would cover freezing of plumbing, heating, air conditioning, and sprinkler systems.

How does the dwelling policy provide theft coverage? A) It must be added by endorsement. B) It is automatically included in the policy. C) It is only included in the DP-2 and DP-3. D) It is included in the DP-3 only.

Answer: A Coverage for theft is provided by adding an endorsement to the policy.

The dwelling policy will provide how much additional coverage for a fire department service charge? A) $500.00 B) $250.00 C) $750.00 D) $1,000.00

Answer: A Dwelling policies provide up to $500 for fire department service charges, the same amount that the homeowners policies provide.

Damage caused by burglars is excluded under which of the dwelling forms? A) Basic Form. B) Broad Form. C) Special Form. D) All forms exclude damage caused by burglars.

Answer: A The Basic Form is the most restrictive of the three dwelling forms. The only perils insured against are fire, lightning, and internal explosion. Burglary, vandalism, and mischief are not listed as covered perils.

The greatest difference between the dwelling basic form (DP-1) and the broad form (DP-2) is that the DP-2 automatically includes coverage for: A) vandalism and malicious mischief (VMM). B) fire and lightning. C) flood. D) earthquake.

Answer: A The DP-1 basic form includes only fire, lightning, and internal explosion. Other coverages must be added by endorsement. Flood and earthquake are excluded on all DP forms.

The limit of liability under the dwelling under construction endorsement is provisional. If a loss occurs, the amount paid will be based on the: A) completion date. B) face amount of the policy. C) actual value of the property. D) actual amount of the loss.

Answer: A The dwelling under construction endorsement is used to provide provisional limits of liability for dwellings under construction, on the basis of the intended completion or occupancy date.

An insured purchased a dwelling policy with $40,000 of coverage. The insured also purchased an automatic increase in insurance endorsement that increases the face amount of the policy by 4% each year. If the insured suffers a total loss during the third year that the policy is in effect, what is the maximum amount (round numbers) the policy will pay? A) $44,995.00 B) $40,000.00 C) $41,200.00 D) $60,570.00

Answer: A The insured may request an automatic increase in insurance (or inflation guard) endorsement be added to a dwelling policy to increase periodically the face amount of insurance of the dwelling and other policy coverage by a specified percentage. An inflation guard endorsement is one way to avoid becoming underinsured as a result of inflation, which over time can increase the cost to replace a home.

All of the following statements are true regarding an insured's duties to the insurer after a loss to an insured dwelling EXCEPT: A) the damaged property must be appraised. B) the insured must furnish proof of loss. C) undamaged property must be protected from further loss. D) the insurance company must be notified of the loss.

Answer: A The property needs to be appraised only if the insured and the insurer cannot agree on the amount or value of the loss. The conditions section of the policy spells out, in detail, both the insurer's and the insured's rights and duties. If the insured does not comply with these conditions, the insurer may be released from its obligation to pay for a loss.

An insured lives in a house covered by an $80,000 special form (DP-3) policy. While the insured is on vacation, someone breaks into the house and steals $5,000 in electronic equipment. The damage to the door is estimated at $800. What coverage is provided by the DP-3 policy? A) $800.00 B) $0.00 C) $5,000.00 D) $5,800.00

Answer: A Theft coverage is not automatically included in dwelling policies; however, damage by burglars is included under the Vandalism and Malicious Mischief peril.

An insured has a dwelling policy (DP-3 special form) for $50,000. After a covered fire loss, the insured moves to a local hotel while repairs are being made to the house. While staying in the hotel's penthouse suite, the insured uses room service, always choosing the most expensive food and wine. The entire stay costs $12,000. How much of that amount will the policy cover? A) $10,000.00 B) $0.00 C) $5,000.00 D) $12,000.00

Answer: A Under the special form dwelling policy, up to 20% of Coverage A may be applied to either or both fair rental value and additional living expense as an additional amount of insurance. In this case, the insured is covered for up to $10,000 (20% of the $50,000 Coverage A amount). The additional $2,000 ($12,000 - $10,000) is the insured's out-of-pocket expense. Insurance is intended to make the insured whole after the loss, not to enrich the insured.

An insured has an $80,000 dwelling policy with a $500 deductible. In addition to the house, the property includes a detached garage, storage shed, and an artist's studio. During a thunderstorm, the garage and storage shed are damaged by lightning. The loss is $3,000 to the garage and $1,000 to the shed. What amount is covered by the policy? A) 4000 B) 3500 C) 0 D) 3000

Answer: B Coverage B--Other Structures provides coverage for real property located on the described location and separated from the dwelling by clear space. Up to 10% of Coverage A (in this case $8,000) is included for other structures. Lightning is a covered peril so the policy would pay $3,500 (the $4,000 loss less the $500 deductible).

An insured suffers a covered loss to some rental property that forces the tenant to move to another location. Under which section of the dwelling policy would the insured receive payment during the time the property is being repaired? A) Coverage E--Additional Living Expense. B) Coverage D--Fair Rental Value. C) Coverage A--Dwelling. D) Coverage B--Other Structures.

Answer: B Coverage D--Fair Rental Value is the amount payable to an insured homeowner for loss of rental income due to damage that makes the premises uninhabitable. Payment is made for the shortest time required to repair or replace the part of the rental location.

Coverage E in the dwelling policy provides coverage for: A) medical payments. B) additional living expense. C) fair rental value. D) personal liability.

Answer: B Coverage E applies to additional living expenses under the dwelling policy forms. Additional living expenses includes the increased expenses that must be incurred for the occupants to maintain their normal lifestyles and standards of living.

An insured has a $70,000 dwelling policy (DP-1 basic) with a $500 deductible. While the insured is on vacation, burglars enter the house and steal several items. The total loss is estimated to be $5,000. How much of that loss will be paid under the policy? A) $5,500.00 B) $0.00 C) $4,500.00 D) $5,000.00

Answer: B The DP-1 basic is a named peril policy that provides coverage only if a loss is caused by one of the perils specifically named or identified in the policy. If a peril is not listed, it is not covered. The DP-1 basic covers only fire, lightning, and internal explosion. Burglary is not listed as a named peril and is not covered.

Of the dwelling forms, which one of the following provides the broadest coverage? A) Standard. B) Special. C) Specific. D) Premier.

Answer: B The DP-3 special form provides the broadest coverage of the three dwelling forms. It provides open peril coverage for buildings and related structures and named peril coverage for personal property.

An insured has an unendorsed $50,000 special form (DP-3) dwelling policy. The insured's dog bites a child, and the parents sue the insured for $500 for the child's medical bills, $1,000 for rabies shots, and $5,000 for pain and suffering. How much will the policy pay? A) $6,500.00 B) $0.00 C) $500.00 D) $1,500.00

Answer: B The insured has no coverage because the policy is unendorsed and liability coverage is not automatically included in dwelling policies. Coverage is available by adding a personal liability supplement to the policy. Liability coverage can be added for a residence premise as long as the insured resides in at least one of the family units; the residence premise can be a 3- or 4-family dwelling. Coverage is provided for bodily injury and property damage. Medical payments coverage is also included in the liability supplement and will pay the necessary medical expenses for bodily injury of others when caused by action of the insured.

Which of the following statements about the dwelling basic form (DP-1) is CORRECT? A) The policy is designed to provide broad coverage for personal property. B) The DP-1 provides coverage for appurtenant structures. C) The DP-1 is an open-perils policy. D) The policy covers fire, lightning, and all types of explosion.

Answer: B The policy provides coverage for appurtenant (other) structures. The DP-1 policy is a named perils policy that provides coverage only for perils specifically named in the policy: fire, lightning, and internal explosion. The definition of internal explosion does not include electric arcing, breakage of water pipes or pressure devices, or loss by explosion of steam pipes or boilers. Coverage for personal property is limited to a declared value, and not all items may be insured.

Which one of the following types of property CANNOT be covered by a dwelling policy? A) Row houses. B) Three apartment dwellings. C) Farm dwellings. D) Mobile homes on permanent foundations.

Answer: C Properties eligible for dwelling policies include mobile homes on permanent foundations, townhouses, row houses, and dwellings containing up to four apartments. Farm dwellings are not covered by dwelling or homeowners policies. They must be insured under the farm program policy.

A dwelling policy can insure all of the following types of personal property EXCEPT: A) lawnmowers. B) furniture. C) sailboats. D) motorized wheelchairs.

Answer: C Rowboats and canoes are the only types of watercraft that may be covered under a dwelling policy.

A DP-2 policy would cover losses from all of the following perils EXCEPT: A) weight of ice, snow or sleet. B) damage by burglars. C) infestation of insects. D) falling objects.

Answer: C The DP-2 is a named-perils policy, meaning that only those perils specifically listed are covered. Infestation of insects is not a listed peril.

The special form (DP-3) covers the dwelling and other structures for: A) broad form perils only. B) extended coverage perils. C) all risks of direct physical loss. D) named perils only.

Answer: C The DP-3, the special form, is an open-perils policy. This type of insurance pays for all losses to the insured property except for losses specifically excluded in the policy. The open-perils policy contrasts with the named-peril policy, which covers only the losses spelled out in the policy.

An insured has a $60,000 special form (DP-3). When a covered loss in the amount of $10,000 damages the attached garage, how much of that amount is paid under the Coverage B-Other Structures? A) $6,000.00 B) $10,000.00 C) $0.00 D) $1,000.00

Answer: C The attached garage is considered part of the dwelling so the $10,000 is paid under Coverage A-Dwelling. Real property located on the described property and separated from the dwelling by clear space is covered by Coverage B-Other Structures.

The following perils may be insured against under a basic dwelling policy EXCEPT: A) lightning. B) vandalism and malicious mischief. C) flood. D) fire.

Answer: C Water damage, including flooding, is not a covered peril under a dwelling policy. Fire and lightning are covered perils on the basic form, and vandalism and malicious mischief is available for an additional premium.

An insured has a $40,000 dwelling special form (DP-3) policy. After hosting an afternoon party, the insured discovers that the family's credit cards and ATM cards are missing. If the cards are used, what coverage is provided under Coverage C-Personal Property and why? A) $0. Coverage C provides insurance only for the insured's personal property. B) $4,000. Coverage C provides up to 10% of the dwelling amount for loss of personal property. C) $20,000. Coverage C provides up to 50% of the dwelling amount for loss of personal property. D) $0. Coverage C excludes coverage for credit cards.

Answer: D The dwelling forms exclude coverage for accounts, bank notes, bills, coins, securities, animals, aircraft, motor vehicles and equipment, watercraft, and data.