Chapter 7 Flashcards
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) 3000
B) 4000
C) 3500
D) 0
Answer: C
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 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 excludes coverage for credit cards.
B) $0. Coverage C provides insurance only for the insured’s personal property.
C) $4,000. Coverage C provides up to 10% of the dwelling amount for loss of personal property.
D) $20,000. Coverage C provides up to 50% of the dwelling amount for loss of personal property.
Answer: A
The dwelling forms exclude coverage for accounts, bank notes, bills, coins, securities, animals, aircraft, motor vehicles and equipment, watercraft, and data.
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 D–Fair Rental Value.
B) Coverage A–Dwelling.
C) Coverage B–Other Structures.
D) Coverage E–Additional Living Expense.
Answer: A
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.
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) $5,000.00
B) $12,000.00
C) $10,000.00
D) $0.00
Answer: C
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.
All of the following statements are true regarding an insured’s duties to the insurer after a loss to an insured dwelling EXCEPT:
A) undamaged property must be protected from further loss.
B) the insurance company must be notified of the loss.
C) the damaged property must be appraised.
D) the insured must furnish proof of loss.
Answer: C
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 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.
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 be used to insure all of the following EXCEPT:
A) lake cabins.
B) apartment building with 6 units.
C) rental homes.
D) duplexes.
Answer: B
A dwelling policy may be used to insure a building with up to four apartments.
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.
Which of the following statements about the dwelling basic form (DP-1) is CORRECT?
A) The DP-1 provides coverage for appurtenant structures.
B) The DP-1 is an open-perils policy.
C) The policy covers fire, lightning, and all types of explosion.
D) The policy is designed to provide broad coverage for personal property.
Answer: A
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.
A dwelling policy can insure all of the following types of personal property EXCEPT:
A) sailboats.
B) motorized wheelchairs.
C) lawnmowers.
D) furniture.
Answer: A
Rowboats and canoes are the only types of watercraft that may be covered under a dwelling policy.
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) $0.00
B) $4,500.00
C) $5,000.00
D) $5,500.00
Answer: A
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.
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.
In the dwelling forms, damage from vandalism is not covered if the building has been vacant for more than:
A) 30 consecutive days.
B) 90 consecutive days.
C) 60 consecutive days.
D) 14 consecutive days.
Answer: C
Vandalism damage to a building that has been vacant for more than 60 consecutive days is excluded.
The dwelling policy will provide how much additional coverage for a fire department service charge?
A) $750.00
B) $1,000.00
C) $500.00
D) $250.00
Answer: C
Dwelling policies provide up to $500 for fire department service charges, the same amount that the homeowners policies provide.
