Named PerilP&C producer exam prep

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Dwelling policy on the P&C exam

A dwelling policy insures a house, usually one the owner rents to a tenant, under three ISO forms that widen step by step: DP-1 basic, DP-2 broad and DP-3 special. None of the three carries liability; that comes from the Personal Liability Supplement, the first place the dwelling forms part ways with the homeowners policy.

DP-1, DP-2 and DP-3 side by side

ISO dwelling program, DP 00 01/02/03 12 02. Insurers and states can modify these forms.
FormDwelling and other structuresPersonal propertyLoss settlement on A and BLoss of use
DP-1 basicFire, lightning, internal explosion; EC and VMM optionalSame named perilsActual cash value (ACV)D only, 20% of A, reduces A; E by endorsement
DP-2 broadBroad named perilsBroad named perilsReplacement cost (RC) if insured to 80%+D and E share 20% of A, additional
DP-3 specialOpen perilsBroad named perilsRC if insured to 80%+D and E share 20% of A, additional

Who the forms are for, and how they differ

The dwelling forms exist for risks a homeowners policy does not suit: a house rented to a tenant, a seasonal home, or a dwelling that misses homeowners eligibility. A year-round owner-occupant who wants liability built in belongs on a homeowners form instead.

The peril basis climbs with the form number. On a DP-1 only fire, lightning and internal explosion are automatic; windstorm arrives with the extended coverage (EC) option and vandalism with VMM. On a DP-3 the dwelling is open perils, so a loss is covered unless an exclusion takes it out, while contents stay on broad named perils. That split between building and contents is the center of the DP-1 vs DP-2 vs DP-3 comparison; the general logic of the two peril bases is on named vs open perils.

The limits run on percentages: Coverage B at 10% of A, loss of use at 20% of A, trees at 5% of A. A wrong answer here applies the right percentage to the wrong coverage, or carries a homeowners percentage over to a dwelling form.

Coverages A through E

Coverage A, Dwelling
The house at the described location, including structures attached to it.
Coverage B, Other structures
Structures set apart from the dwelling by clear space, such as a detached garage. 10% of A: part of the A limit on the DP-1, additional on the DP-2 and DP-3.
Coverage C, Personal property
The owner's contents at the dwelling, such as a landlord's appliances. Named perils on every dwelling form; up to 10% of C applies anywhere in the world.
Coverage D, Fair rental value
Rent lost while a covered loss leaves the rented part unfit for use.
Coverage E, Additional living expense
An owner-occupant's extra cost of living elsewhere after a covered loss. Built into the DP-2 and DP-3, added by endorsement on the DP-1.

Why three trees pay $1,500

WorksheetWorked example

Coverage A $180,000; lightning kills three trees, each $800 to replace

Coverage A
$180,000
Trees lost
3
Cost per tree
$800
Form limit
5% of A, $500 per tree
  1. Per-tree caplesser of $800 and $500$500
  2. Three trees3 × $500$1,500
  3. Overall cap5% × $180,000$9,000
  4. Lesser of the two$1,500 vs $9,000$1,500

Insurer pays, before the deductible$1,500

Swap lightning for windstorm and the answer drops to $0: wind is not a covered peril for trees on the DP-2 or DP-3. A figure of $2,400 skips the per-tree cap.

Vacancy and the conditions that settle claims

Vacancy weighs more on dwelling forms than on homeowners forms, because rentals sit empty between tenants. A vacant house has neither occupants nor the contents needed to live in it; an unoccupied house still has its furnishings. Once a dwelling has been vacant for more than 60 consecutive days, vandalism and malicious mischief and glass breakage are excluded.

Several additional coverages differ by form, and the gap is the test. Property removed to protect it from a covered peril is covered for 5 days on the DP-1 and 30 days on the DP-2 and DP-3. The broad and special forms add a $500 fire department service charge, ordinance or law at 10%, collapse, and glass. The rest of the conditions, from the mortgage clause to appraisal and proof of loss, work as they do on any property form; see property insurance basics.

Loss settlement follows the table above. On the DP-1, ACV is replacement cost less depreciation, so a fifteen-year-old furnace is paid at what it was worth the day before the fire. The DP-2 and DP-3 move the dwelling to replacement cost when it is insured to at least 80% of that value; the arithmetic behind both bases is on ACV vs replacement cost.

Form, coverage letter, peril

0 of 15 answered · 0 right

Each item is settled by three facts: which DP form, which coverage letter, and which peril or condition applies.

Notes on each optionCommit to an answer first. The notes under the item then open on every option: what rules it in or out, and the one word that splits the runner-up from the key.

  1. Item 01

    An insurer decides not to renew a landlord's DP-3 at its expiration date. What is the minimum notice it must give the named insured?

    1. A10 days is the notice for cancellation for nonpayment or during a new policy's first 60 days, not nonrenewal.
    2. BCorrect: the dwelling forms require nonrenewal notice at least 30 days before the expiration date.
    3. C20 days is the personal auto policy's nonrenewal period, not the dwelling form's.
    4. D60 days is not the dwelling nonrenewal notice; it echoes the vacancy and new-policy periods.
  2. Item 02

    Which BEST describes actual cash value as used to settle a DP-1 loss?

    1. AReplacement cost with no deduction is replacement cost, not actual cash value.
    2. BDepreciation comes off today's replacement cost, not the original purchase price.
    3. CWhat a buyer would pay is market value, which includes land and location and is not ACV.
    4. DCorrect: actual cash value is the current cost to replace with like kind and quality, minus depreciation.
  3. Item 03

    A landlord owns a matched pair of antique lamps worth $2,000 as a pair. A fire destroys one lamp, and the remaining lamp alone is worth $600. Under the loss to a pair or set condition, what may the insurer pay?

    1. A$1,000 pays half the pair's value, ignoring that one lamp alone is worth much less than half a set.
    2. BCorrect: under the pair or set condition the insurer may pay the difference in value before and after the loss: $2,000 − $600 = $1,400.
    3. CThe insurer does not have to pay for the whole pair when one piece survives with value.
    4. D$600 is the value of the surviving lamp, not the loss.
  4. Item 04

    Maria lives in one unit of a duplex and rents out the other. It is insured under a DP-3 with a $250,000 Coverage A limit. A fire makes both units unfit for use. What is the most the policy will pay for Coverages D and E combined?

    1. ACorrect: in the DP-2 and DP-3, Coverages D and E share a limit of 20% of Coverage A (20% × $250,000 = $50,000), paid as additional insurance.
    2. B$25,000 is 10% of A, which matches Coverage B, not D and E combined.
    3. COnly the DP-1 makes fair rental value reduce Coverage A; in the DP-3 it is additional insurance.
    4. D$75,000 applies the HO-3's 30% loss-of-use figure, which the dwelling forms do not use.
  5. Item 05

    A rental house insured under a DP-3 is endorsed for earthquake with a $10,000 deductible. An earthquake causes $15,000 of damage, and an aftershock 40 hours later causes $12,000 more. How much will the insurer pay?

    1. A$27,000 ignores the $10,000 deductible.
    2. B$7,000 applies a separate deductible to each shock, but shocks within 72 hours are one earthquake.
    3. CCorrect: shocks within a 72-hour period are one earthquake with one deductible: $15,000 + $12,000 − $10,000 = $17,000.
    4. D$15,000 pays only the first shock in full and ignores both the aftershock and the deductible.
  6. Item 06

    A landlord wants open-perils coverage on the dwelling of a rental house. Which form should the agent recommend?

    1. ACorrect: the DP-3 covers the dwelling and other structures on an open-perils basis.
    2. BThe HO-4 insures a tenant's belongings, not a landlord's building.
    3. CA DP-1 with extended coverage is still a named-perils form, and the narrowest one.
    4. DThe DP-2 broad form is named perils, not open perils.
  7. Item 07

    Under a DP-3, which dwelling loss is covered?

    1. AWet rot from a slow leak is excluded as gradual deterioration.
    2. BWear and tear is excluded as a maintenance loss.
    3. CSettling and cracking of foundations is excluded.
    4. DCorrect: the DP-3 covers the dwelling against open perils, and windstorm is not excluded.
  8. Item 08

    A fire makes Kevin's rental house uninhabitable, and his tenant stops paying rent during repairs. Which DP-3 coverage pays Kevin's lost rent?

    1. ACorrect: Coverage D – Fair Rental Value pays the rent a landlord loses while a covered loss makes the rental unfit to live in.
    2. BAdditional Living Expense pays extra living costs of an insured who lives in the dwelling, which a landlord does not.
    3. COther Structures pays for detached buildings, not lost rent.
    4. DCoverage A pays to repair the house itself, not the lost rent.
  9. Item 09

    A rental house insured under a DP-2 with a $200,000 Coverage A limit is destroyed by fire, a $200,000 loss. Removing the debris costs another $15,000. How much will the policy pay in total?

    1. ACorrect: in the DP-2, debris removal is included in the limit for the damaged property with no extra amount, so the $200,000 limit is the most paid.
    2. B$210,000 applies the homeowners extra 5% for debris removal, which the dwelling forms do not have.
    3. C$215,000 pays the debris cost on top of the limit, as if debris removal were unlimited additional insurance.
    4. D$250,000 adds an invented amount above the Coverage A limit.
  10. Item 10

    After a fire at a rental house insured under a DP-2, the insurer asks the landlord for a signed, sworn proof of loss. When must the landlord submit it?

    1. A30 days after the loss is wrong on both counts: the period is 60 days and it runs from the request.
    2. BCorrect: a signed, sworn proof of loss is due within 60 days after the insurer's request.
    3. C1 year is not the proof-of-loss period; suit against the insurer has its own separate deadline.
    4. D10 days after the loss is far too short and counts from the wrong event.
  11. Item 11

    Paul's rental house, insured under a DP-2, still contains his furniture, but no tenant has lived there for 70 days. Vandals damage the house. How is the loss treated?

    1. ACorrect: the vandalism exclusion applies only when the dwelling is vacant (empty of occupants and contents) for more than 60 days, and a furnished house is merely unoccupied.
    2. BThe 85% payment comes from the commercial property vacancy rule, not the dwelling forms.
    3. CThe house still has Paul's furniture, so it is unoccupied, not vacant, and the 60-day vacancy exclusion does not apply.
    4. DNo tenant in residence makes the house unoccupied, which the dwelling forms do not penalize.
  12. Item 12

    Which client is the BEST candidate for a dwelling policy rather than a homeowners policy?

    1. AAn owner who lives in the home qualifies for a homeowners form such as the HO-3, which adds liability.
    2. BA tenant insuring belongings needs an HO-4.
    3. CA condo owner living in the unit needs an HO-6.
    4. DCorrect: dwelling policies are mainly for non-owner-occupied rental houses, such as an investor's rental.
  13. Item 13

    Under a dwelling policy, which of the following is covered as an other structure under Coverage B?

    1. AA riding lawn tractor is personal property under Coverage C, not a structure.
    2. BA deck built onto the house is part of the dwelling under Coverage A.
    3. CAn attached garage is part of the dwelling under Coverage A.
    4. DCorrect: a structure connected to the dwelling only by a fence, utility line or similar connection still counts as an other structure.
  14. Item 14

    During the term of a landlord's DP-3, the insurer adopts a new edition of the form that broadens coverage at no extra premium. How does this affect the landlord's policy?

    1. ALiberalization does not wait for renewal; it applies to the current policy.
    2. BCorrect: under the liberalization clause, a change that broadens coverage at no extra premium applies to the current policy right away.
    3. CThe policy does not have to be rewritten to get the broader coverage.
    4. DNo endorsement is needed; the liberalization clause applies the change automatically.
  15. Item 15

    A landlord installs a central-station burglar alarm and smoke detectors in a rental house insured under a DP-3. How does this usually affect the policy?

    1. AAlarms do not add coverage; theft on a dwelling policy still needs a theft endorsement.
    2. BCorrect: protective devices reduce the physical hazard and usually earn a premium credit.
    3. CThe vacancy exclusion still applies after 60 days; protective devices do not waive it.
    4. DLimits stay as written; an alarm does not raise Coverage C.
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