Ch. 4 Dwelling Policy - Random Questions 1 - MI P&C Licensing

Policyholder L has a DP-1 with a Coverage A amount of $300,000. Following a severe storm, she suffers a covered loss to the dwelling of $275,000 and a covered loss to a detached swimming pool of $30,000. How much will L's policy pay? A. $300,000 B. $250,000 C. $275,000 D. $305,000

A. $300,000 The pool is covered under Coverage B, which pays up to 10% of Coverage A, or $30,000. However, because L's policy is written on the DP-1 form, the Coverage B limit is included in, not additional to, the Coverage A limit. Therefore, the most the policy will pay is $300,000. 4.2

All of the following are eligible for coverage under the Dwelling Program, except: A. A beauty shop with a small bedroom attached B. A duplex C. A single-family home in the suburbs D. A vacation home used as a secondary residence

A. A beauty shop with a small bedroom attached A dwelling used primarily for business is not eligible 4.1

Which is true of the Dwelling policy Special Form? A. Contents are covered on an actual cash value basis B. The form will cover the theft of contents C. Losses to the dwelling are paid on an actual cash value basis D. The form will cover the cracking of walls

A. Contents are covered on an actual cash value basis Losses to the dwelling are paid on a replacement cost basis, while the contents are paid on an actual cash value basis. Cracking of walls and theft are excluded under the policy. 4.1

Which is true regarding Dwelling policies? A. Coverage C applies while insured property is located at the described location B. Coverage D is considered a direct loss coverage C. Coverage B would cover an attached garage D. Coverage C includes coverage for personal property of tenants and boarders

A. Coverage C applies while insured property is located at the described location Coverage C may be extended to cover property of guests and servants. Coverage D, Fair Rental Value, is an indirect coverage.

Water damage caused by which of the following is a covered loss under the Dwelling policy? A. Discharge caused by a plumbing failure B. Overflow of water from a sump pump C. Water below the surface of the ground D. Leaks through a driveway

A. Discharge caused by a plumbing failure Water damage is excluded if caused by surface water, tidal water, and leakage through a building, foundation, or other structure. 4.4

The DP-3 insures personal property against the same perils as: A. The DP-2 Personal Property Coverage B. The DP-1 Dwelling Coverage C. The DP-3 Dwelling coverage D. The DP-1 Personal Property Coverage

A. The DP-2 Personal Property Coverage The DP-3 covers the dwelling against open perils, and personal property against the broad (DP-2) perils. 4.1

Which of the following statements about the DP-3 Policy is false? A. The dwelling and contents are both covered on an open perils basis B. The insured dwelling must be used principally for dwelling purposes C. Losses to the dwelling are paid on a replacement cost basis D. Mobile homes are not eligible

A. The dwelling and contents are both covered on an open perils basis Only the dwelling is covered on an open perils basis.

All of the following are true regarding Dwelling policy eligibility, except: A. The dwelling must be used for seasonal or secondary purposes B. Some incidental business occupancies are permitted C. Farm dwellings are not eligible D. Mobile homes are eligible if written on a DP-1

A. The dwelling must be used for seasonal or secondary purposes The dwelling must be used principally for residential dwelling purposes and MAY be occupied on a seasonal or secondary basis, but it is not required. 4.3

The Dwelling Broad Form (DP-2) insures against all of the following perils, except: A. Theft B. Damaged caused by burglars C. Breakage of glass that is a part of the building, storm door or window D. Accidental discharge or overflow

A. Theft There is no theft coverage in a Dwelling broad Form policy. 4.1

Which DP form does not cover burglar damage? A. Broad Form (DP-2) B. Basic Form (DP-1) C. None of the Dwelling Policies cover damage done by burglars D. Special Form (DP-3)

B. Basic Form (DP-1) Damage by burglars is covered only in the broader Forms DP-2 and DP-3. 4.1

All of the following are true of Dwelling Special Form, except: A. The dwelling must be used principally for residential dwelling purposes B. Both the dwelling and contents are covered on an open perils basis C. Mobile homes are not eligible D. Losses to the dwelling are paid on a replacement cost basis

B. Both the dwelling and contents are covered on an open perils basis Only the dwelling is covered on an open perils basis. 4.1

Which is true of the Dwelling policy Special Form? A. The form will cover the theft of contents B. Contents are covered on an actual cash value basis C. The form will cover the cracking of walls D. Losses to the dwelling are paid on an actual cash value basis

B. Contents are covered on an actual cash value basis Losses to the dwelling are paid on a replacement cost basis, while the contents are paid on an actual cash value basis. Cracking of walls and theft are excluded under the policy. 4.1

All of the following statements are correct regarding Coverage E, except: A. Coverage applies to the extent of the insured's normal standard of living B. Coverage E is available under all Dwelling policy forms C. Additional living expenses include the boarding of pets D. Additional living expense coverage is available if the dwelling is uninhabitable

B. Coverage E is available under all Dwelling policy forms Coverage E - Additional Living Expense is not included on the DP-1 form. 4.2

Which of the following claims would be covered under the DP-3? A. Theft to a dwelling under construction B. Damage by vandalism to a dwelling vacant for 30 days before the loss C. Freezing of an air conditioning unit D. Wind damage to TV antennas

B. Damage by vandalism to a dwelling vacant for 30 days before the loss Loss from vandalism and malicious mischief is excluded if the dwelling has been vacant for more than 60 consecutive days immediately before a loss. A dwelling vacant for only 30 days would still be covered. 4.1

Which of the following is true under the Dwelling policy? A. The Basic Form covers loss to trees, shrubs and plants B. The Basic Form covers the perils of fire, lightning and internal explosion C. The Broad Form automatically covers contents against theft D. The Special Form covers contents on an open perils basis

B. The Basic Form covers the perils of fire, lightning and internal explosion The Basic Form is written on a named perils basis and does not cover theft, or loss to trees, shrubs, and plants. 4.1

All of the following are true of the Dwelling Policy Broad Form, except: A. Losses to the dwelling are paid on a replacement cost basis B. The broad form covers dwellings located on farms C. The broad form automatically covers incidental business occupancies D. The dwelling and contents are covered for the broad form perils

B. The broad form covers dwellings located on farms Dwellings located on farms are not eligible for the Dwelling program. 4.1

All of the following are true regarding Dwelling policy eligibility, except: A. Farm dwellings are not eligible B. The dwelling must be used for seasonal or secondary purposes C. Some incidental business occupancies are permitted D. Mobile homes are eligible if written on a DP-1

B. The dwelling must be used for seasonal or secondary purposes The dwelling must be used principally for residential dwelling purposes and MAY be occupied on a seasonal or secondary basis, but it is not required. 4.3

The Limited Theft Coverage endorsement to the DP is used under which of the following circumstances? A. The dwelling has been vacant for more than 60 days B. The insured dwelling is tenant-occupied C. The insured dwelling is owner-occupied D. Coverage is desired for off-premises property

B. The insured dwelling is tenant-occupied The Limited Theft Coverage endorsement may only be used if the dwelling is tenant occupied. Owner-occupied dwellings should use the Broad Theft endorsement. 4.5

Which of the following statements about Fire Department Service Charge coverage is not correct? A. The policy deductible does not apply to this coverage B. The policy will pay up to $1,000 for Fire Department Service Charge coverage C. Coverage does not apply if the property is located within the limits of the jurisdiction furnishing the fire department response D. Fire Department Service Charge coverage is included under all Dwelling policy forms

B. The policy will pay up to $1,000 for Fire Department Service Charge coverage Under each of the dwelling forms, the policy will pay up to $500 for liability assumed for fire department charges when the fire department is called to save or protect covered property from an insured peril. Coverage does not apply if the property is located within the limits of the jurisdiction furnishing the fire department response. 4.3

Which form would not insure against external explosion? A. Endorsed DP-1 B. Unendorsed DP-1 C. DP-2 D. DP-3

B. Unendorsed DP-1 The basic perils covered by the DP-1 form (without the extended coverage perils endorsement) are: fire, lightning, and internal explosion. 4.1

An insured tenant may use up to what percentage of Coverage C to improve the premises? A. 5% B. 20% C. 10% D. 0%

C. 10% An tenant may use up to 10% of the Coverage C limit for a covered loss to improvements, alterations, and additions made at the insured's expense to that part of the described location occupied by the named insured. 4.2

Which DP form does not cover burglar damage? A. Broad Form (DP-2) B. None of the Dwelling Policies cover damage done by burglars C. Basic Form (DP-1) D. Special Form (DP-3)

C. Basic Form (DP-1) Damage by burglars is covered only in the broader Forms DP-2 and DP-3. 4.1

Which of the following properties is ineligible to be insured under a Dwelling Policy? A. Mobile homes B. Dwellings containing three apartment units C. Farms D. Dwellings with any type of business in them

C. Farms Dwellings located on farms are not eligible. Dwellings must be used principally for residential dwelling purposes and cannot have more than 4 dwelling units. Incidental business occupancies, such as schools, studios, and offices, are permitted if the primary use of the dwelling is as a personal residence. 4.1

Sudden and accidental damage from artificially generated electrical current best describes a(n): A. Mechanical breakdown B. Power Failure C. Power Surge D. Internal Explosion

C. Power Surge Sudden and accidental damage from artificially generated electrical current is caused by man-made electricity or power surge. 4.1

Which of the following describes the loss settlement basis for a fire damage claim to a dwelling insured under a DP-3 policy? A. Actual cash value of the dwelling up to the Coverage B limit B.Actual cash value of the dwelling up to the Coverage A limit C. Replacement cost up to the Coverage A limit D. Replacement cost up to the Coverage B limit

C. Replacement cost up to the Coverage A limit The dwelling is covered under Coverage A. Losses to the dwelling and other structures are paid on a replacement cost basis, and losses to personal property are paid on an actual cash value basis. 4.1

Which statement is true concerning Dwelling policies? A. The Basic Form pays for losses to the dwelling on a replacement cost basis B. The Special Form automatically covers the contents against the peril of theft C. The Special Form insures the dwelling on an open perils basis, and insures the contents against the broad form perils D. 100% of Coverage C applies to worldwide coverage

C. The Special Form insures the dwelling on an open perils basis, and insures the contents against the broad form perils The Special Form insures the dwelling on an open perils basis, and insures the contents against the broad form perils. Theft is excluded. The Basic Form settles losses to the dwelling on an ACV basis. Up to 10% of the Coverage C limit may be applied to covered property anywhere in the world. 4.1

Under Coverage C of the Special Dwelling Form, all of the following are included, except: A. Household and personal property B. Property of others that is in the care, custody and control of the insured C. The insured's golden retriever D. At the insured's option, property of guests and servants

C. The insured's golden retriever The policy does not cover animals or pets. 4.2

Which of the following is correct regarding damage caused by vandalism under the Basic Dwelling Form? A. It is covered as a basic peril B. Vandalism of vacant buildings is automatically covered C. Vandalism coverage must be added by the V&MM endorsement D. It is covered as an extended coverage peril

C. Vandalism coverage must be added by the V&MM endorsement The Basic Dwelling Form is designed to provide coverage at a minimum cost. If the insured desires vandalism coverage an endorsement and additional premium is required. Vandalism of vacant buildings is excluded even under the endorsement. 4.1

All of the following are covered perils under the Extended Coverage Endorsement to the DP-1, except: A. Volcanic eruption B. Vehicles C. Weight of ice, snow or sleet D. Windstorm

C. Weight of ice, snow or sleet Weight of ice, snow or sleet is not part of the EC perils. 4.1

Coverage D covers which of the following losses? A. Damage to a swimming pool B. Additional living expense C. Loss of rental income due to the cancellation of a lease D. Access prevented by a civil authority because of a neighboring location's direct loss by a peril covered under the insured's policy

D. Access prevented by a civil authority because of a neighboring location's direct loss by a peril covered under the insured's policy Coverage D, Fair Rental Value, includes coverage for the indirect loss of access prevented by a civil authority due to the direct loss of a neighboring property by a covered peril. 4.2

All of the following are true of Dwelling Special Form, except: A. Mobile homes are not eligible B. The dwelling must be used principally for residential dwelling purposes C. Losses to the dwelling are paid on a replacement cost basis D. Both the dwelling and contents are covered on an open perils basis

D. Both the dwelling and contents are covered on an open perils basis Only the dwelling is covered on an open perils basis. 4.1

The abrupt falling down or caving in of a building disallowing it to be used for its intended purpose is the definition of: A. Defective planning B. Earth Movement C. Settling D. Collapse

D. Collapse Collapse is defined as the abrupt falling down or caving in of a building, but only if it cannot be occupied for its current intended purpose. If a building, or any portion of a building, is in danger of falling down or caving in -- or if it's standing, it is not in a state of collapse. 4.3

Which of the following coverages is not provided by the Personal Liability endorsement? A. Medical payments to others B. First aid expenses C. Defense costs D. Injury caused to a regular resident of the dwelling

D. Injury caused to a regular resident of the dwelling Liability coverage applies to expenses incurred by residence employees, but not the named insured or regular residents of the named insured's household. 4.5

Which of the following describes the loss settlement basis for a fire damage claim to a dwelling insured under a DP-3 policy? A. Actual cash value of the dwelling up to the Coverage A limit B. Replacement cost up to the Coverage B limit C. Actual cash value of the dwelling up to the Coverage B limit D. Replacement cost up to the Coverage A limit

D. Replacement cost up to the Coverage A limit The dwelling is covered under Coverage A. Losses to the dwelling and other structures are paid on a replacement cost basis, and losses to personal property are paid on an actual cash value basis. 4.1

Which of the following perils is not covered under the Dwelling Broad Form? A. Vehicle damage to the dwelling B. Burglary Damage C. Weight of ice and snow D. Smoke damage from industrial operations

D. Smoke damage from industrial operations Smoke damage is a covered peril of the Dwelling Broad Form; however, the description of the peril specifically excludes smoke from agricultural smudging or industrial operations. 4.1

Which of the following is true under the Dwelling policy? A. The Special Form covers contents on an open perils basis B. The Broad Form automatically covers contents against theft C. The Basic Form covers loss to trees, shrubs and plants D. The Basic Form covers the perils of fire, lightning and internal explosion

D. The Basic Form covers the perils of fire, lightning and internal explosion The Basic Form is written on a named perils basis and does not cover theft, or loss to trees, shrubs, and plants. 4.1

Which of the following is true of a Dwelling Form? A. The Basic Form covers the contents against theft B. The Broad Form covers the cost to repair defective plumbing C. The Special Form covers the contents on an open perils basis D. The Basic Form insures against the perils of fire, lightning and internal explosion

D. The Basic Form insures against the perils of fire, lightning and internal explosion The unendorsed Basic Form only insures against the perils of fire, lightning, and internal explosion. 4.1