Chapter 7. Dwelling Insurance

1. The Johnsons' home is covered by a Special Dwelling policy. When a fire damages the home, the family is forced to stay at a motel for a month while repairs are made. What coverage might reimburse them for these expenses?

Dwelling coverage

Additional living expenses

Personal property coverage

Fair rental value coverage

B is correct. Both the Broad and Special forms make coverage available for Additional Living Expense. This coverage pays for additional living expenses the insured incurs after a covered loss, including reasonable motel, dining, laundry, and transportation expenses. These expenses are covered for the time needed to repair or replace the damaged property or become settled elsewhere in permanent quarters.

Explanation

B is correct. Both the Broad and Special forms make coverage available for Additional Living Expense. This coverage pays for additional living expenses the insured incurs after a covered loss, including reasonable motel, dining, laundry, and transportation expenses. These expenses are covered for the time needed to repair or replace the damaged property or become settled elsewhere in permanent quarters.

2. Which of these items of personal property would be covered under a Dwelling policy when Coverage C is written?

A motorcycle

A pet poodle

A pool table

A sailboat

C is correct. Animals, motor vehicles, and most types of boats are excluded under Coverage C.

Explanation

C is correct. Animals, motor vehicles, and most types of boats are excluded under Coverage C.

3. A Basic Dwelling policy form automatically provides coverage for losses caused by each of the following perils except which one?

Fire

Lightning

Internal explosion

Vandalism and malicious mischief

D is correct. The only perils that are automatically covered under the Basic form are fire, lightning, and internal explosion.

Explanation

D is correct. The only perils that are automatically covered under the Basic form are fire, lightning, and internal explosion.

4. Which of the following could not be covered under a Dwelling policy?

A mobile home that is not permanently located

A single family home that is under construction

A three-unit townhouse

A home that is rented to another person

A is correct. To be eligible, a mobile home must be permanently located.

Explanation

A is correct. To be eligible, a mobile home must be permanently located.

5. Which of the following coverage provisions would not be found in an unendorsed Dwelling policy form?

Dwelling

Other structures

Liability

Personal property

C is correct. A Dwelling policy automatically includes coverage provisions for the dwelling, other structures, personal property, and fair rental value. Liability and medical payments coverage may only be added by endorsement.

Explanation

C is correct. A Dwelling policy automatically includes coverage provisions for the dwelling, other structures, personal property, and fair rental value. Liability and medical payments coverage may only be added by endorsement.

6. Under which of the Dwelling policy forms may the insured be reimbursed for the replacement cost when the dwelling is destroyed?

All Dwelling forms

The Basic form only

The Broad and Special forms

The Special form only

C is correct. The Broad and Special forms will pay for losses to the dwelling and other structures on a replacement cost basis if the buildings are insured for at least 80% of their replacement value. Under the Basic form, losses are paid on an actual cash value basis.

Explanation

C is correct. The Broad and Special forms will pay for losses to the dwelling and other structures on a replacement cost basis if the buildings are insured for at least 80% of their replacement value. Under the Basic form, losses are paid on an actual cash value basis.

7. Which of the following would not be covered under Coverage A or Coverage B of a Dwelling policy?

A storage shed 100 feet in back of the insured's dwelling where she keeps various yard tools

A detached garage that has been altered to house a manufacturing operation

A stack of lumber placed at the edge of the insured's property that will be used to construct a storage shed

A water heater located in the insured's attached garage

B is correct. A detached garage that is used for commercial, manufacturing, or farming purposes is not covered under a Dwelling policy.

Explanation

B is correct. A detached garage that is used for commercial, manufacturing, or farming purposes is not covered under a Dwelling policy.

8. Myrtle has a Dwelling policy with Broad Theft coverage applicable both on and off her premises. Which of the following theft losses would be covered?

A $400 handgun taken from a bureau in her home

Theft of personal property owned by a boarder who rents a room in Myrtle's home

Two credit cards taken from her desk in her home

A tape player removed from the dashboard of her car that was parked in her garage

A is correct. Credit cards, motor vehicles and their equipment, and property owned by boarders or roomers are all excluded under the Broad Theft Coverage endorsement. However, up to $2,000 of coverage is available to cover theft of firearms.

Explanation

A is correct. Credit cards, motor vehicles and their equipment, and property owned by boarders or roomers are all excluded under the Broad Theft Coverage endorsement. However, up to $2,000 of coverage is available to cover theft of firearms.

9. The Special Dwelling policy form provides which of the following?

Basic coverage for the dwelling and broad coverage for personal property

Broad coverage for the dwelling and basic coverage for personal property

Open peril coverage for the dwelling and broad coverage for personal property

Open peril coverage for both the dwelling and personal property

C is correct. The Special form provides Broad form named peril coverage for personal property and open peril coverage for the dwelling and other structures.

Explanation

C is correct. The Special form provides Broad form named peril coverage for personal property and open peril coverage for the dwelling and other structures.

10. An insured has a DP-3 covering a home that has a replacement value of $100,000. The insured carries $60,000 of insurance. Following a loss, the determined is made that it would cost $12,000 to replace the damaged portion of the home. How much could the insured collect, assuming the ACV of the loss is $6,000?

$12,000

$9,000

$6,000

Nothing

B is correct. To qualify for replacement cost coverage, the insured must carry insurance equal to 80% of the replacement cost of the building. Because the insured does not carry enough insurance, the loss will be paid at proportional replacement cost or ACV, whichever is larger. In this case, proportional replacement cost ($9,000) is larger than ACV ($6,000).

Explanation

B is correct. To qualify for replacement cost coverage, the insured must carry insurance equal to 80% of the replacement cost of the building. Because the insured does not carry enough insurance, the loss will be paid at proportional replacement cost or ACV, whichever is larger. In this case, proportional replacement cost ($9,000) is larger than ACV ($6,000).