Dwelling Insurance Flashcards
Describe the types of buildings eligible for a dwelling policy and who is insured under the policy
Eligibility, Insureds
To be covered under a dwelling policy, a dwelling may have up to 5 boarders and UP TO 4 apartments (NO MORE). It may be a townhouse or a rowhouse.
The dwelling does not have to be occupied by the owner, and it may be under construction.
A dwelling policy may also be used to ensure a mobile home meeting certain qualifications, including that it may be permanently located. Mobile homes may only be covered under the basic form.
Dwelling policies may be used to ensure homes that do not qualify for homeowners insurance.
For example, the owner of a home that is rented to tenants could not insure the home under a homeowners policy but could ensure it under a dwelling policy.
Dwelling policies are also frequently used to ensure vacation homes.
Eligible dwelling property does not have to be exclusively residential.
Certain INCIDENTAL business and professional occupancies are allowed. These operations must be conducted by the insured, provide service rather than sales, and involve no more than TWO people working on the premises at any one time.
Examples of permitted occupancies include beauty parlors, photography studios, and professional offices.
The dwelling policy covers the named insured and the insureds spouse, as long as a spouse lives in the same household as the insured.
Describe what is covered under the four basic coverages provided by all Dwelling Forms
1: coverage A – dwelling
DWELLING coverage the dwelling, structures attached to the dwelling, materials and supplies for use in the construction repair of the dwelling or other structures at the location, and building or outdoor equipment used to service the premises.
2: coverage B – other structures
OTHER STRUCTURES insures buildings on the premises that are separate from the dwelling by a clear space or connected only by a fence, utility line, or similar connection.
The building may not be used for commercial, manufacturing, or farming purposes.
However, structures that contain commercial, manufacturing, or farming property that is owned by the insured or a tenant of the dwelling are covered as long as the structures are not used to store gaseous or liquid fuel. Gravemarkers, including Mausoleums are not covered.
3: coverage C – personal property
4: coverage D – fair rental value
We will begin our discussion with the Basic Form, which is also known as DP–1 and DP 00 01
Although all four coverages are preprinted in the policy form, the insured does not have to purchase each one. For example, an insured who owns an unfurnished house that she rents to others might choose to purchase only Coverage A – dwelling and Coverage D – fair rental value.
Coverage C (Personal Property) dwelling insurance – basic form (DP-1)
Coverage C – Personal Property covers the Insured’s personal property that is AT the described location and is USUAL TO the dwelling occupancy.
Personal property belonging to the insureds guests or servants may be covered at the insured’s request
The following items of personal property are not covered:
1: money, securities, manuscripts, bouillon, currency, accounts, dates, and evidence of debt
2: banknotes, coins, gold other than goldware, letters of credit, metals, personal records, platinum, silver other than silverware, tickets and stamps
3: books of account, drawings and other paper records, electronic data processing tapes, wires, records, discs, and other software media (does not apply to blank recording or storage media or pre-recorded media)
4: Credit cards and fund transfer cards
5: animals, birds, and fish
6: Aircraft
7: Motor vehicles, other than motorized equipment used to maintain that premises
8: boats, other than row boats and canoes
9: hovercraft and parts (hovercraft refers to self – propelled motorized ground effect vehicles, such as air cushion vehicles and flarecraft)
10: water or steam (under the earlier forms, it could be argued that water became the insured’s personal property after it passed through the insureds water meter; this exclusion makes the intent of the policy clear)
11: grave markers, including mausoleums
12: electronic fund transfer cards or access devices used to deposit, withdrawal, or transfer funds
13: script, stored value cards, and smart cards
14: Data stored in computers and related equipment
Coverage is also available for property moved from the described location to another residence of the insured within the same state. The amount of insurance… That applies is divided between the described location and the new location, according to the proportion of property at each location. This coverage is called AUTOMATIC REMOVAL.
Coverage D (in Basic Form DP-1)
Fair rental value
Fair rental value is available if a covered property loss to the dwelling or other structure makes the building UNINHABITABLE and the insured cannot collect the rent he would have been able to receive if the loss had not occurred.
20% of the insurance on the dwelling is available for this coverage.
If a civil authority prohibits the use of the insured property because a covered peril damaged a neighboring location, payments are limited to a MAX of 2 weeks.
Identify the main differences between a dwelling policy and a homeowners policy
The dwelling policy provides protection for individuals and families against loss to their dwelling and personal property.
If you’re already familiar with the homeowners policy, which ALSO covers dwellings and personal property, you may wonder what the differences are between the two policies.
We’ll have an opportunity to look at both forms in detail, but the two key differences are:
1: The dwelling policy provides more limited property coverage than the homeowners policy; and
2: The unendorsed dwelling policy provides property coverage only, while the homeowners policy provides a package of property AND LIABILITY coverages.
There are three separate dwelling policy forms: 1: the basic form, the 2: broad form, and 3: the special form, each providing a higher level of coverage than the last
We will focus on the dwelling 2002 policy issued by the insurance services office (ISO).
Dwelling Policy
Extended coverage (EC) Perils
Although only Fire, Lightning, and Internal Explosion are covered automatically,
the insured has additional options with the basic form. The insured may opt to be covered against a list of additional perils that are sometimes called extended perils
These perils are printed in the DP-1 form. However, no coverage applies unless the insured pays the additional premium and the DECLARATIONS indicate that the insured has Selected extended coverage perils, which includes the following items:
1: riot
2: explosion: this replaces the internal explosion peril that is automatically part of every dwelling policy. Explosion peril encompasses both internal explosions and other types of explosions, such as an explosion at a neighboring location.
3: vehicles: this – does not apply to damage caused by a vehicle owned or operated by the insured or a resident of the household. It also does not include vehicle damage to fences, driveways, and walks.
4: Smoke: smoke damage from fireplaces or from agricultural smudging or industrial operations is not covered.
The smoke peril covers damage caused by PUFFBACK – the release of suit, smoke, vapor, or fumes from a furnace, boiler or similar equipment.
5: hail: damage to the interior of the building from a wind storm or hail is only covered if WIND OR HAIL first makes an opening that allows these elements to enter the building. Awnings, science, and antennas outside a building or not covered against wind or hail damage.
6: civil commotion
7: Aircraft
8: windstorm
9: volcanic eruption
The Insured can also obtain coverage for Vandalism and Malicious Mischief (V&MM) by paying an additional premium and indicating the coverage in the DECLARATIONS. This coverage must be purchased in conjunction with the extended coverage perils.
Vandalism and malicious mischief coverage does not cover:
1: damage to glass parts of the building other than glass building blocks;
2: losses by theft (does not apply to building damage caused by burglars); or
3: vandalism to building that has been vacant for more than 60 consecutive days.
Other Coverages …..for Dwelling insurance Basic Form (DP – 1)
In addition to insuring against the listed Perils, the dwelling basic form provides certain other coverages.
- 1: other structures: other structures provide that up to 10% of the coverage A limit may be used to cover losses to other structures. (The term APPURTENANT structures may also be used to describe other structures.)
2: debris removal: debris removal pays for the expense of removing debris resulting from a loss that is covered by the policy.
3: property removed: this covers loss to property that occurs while the property is being removed to protect it from a covered peril. (This is not the same as automatic removal, which extends personal property coverage to property moved to another residence.) in the basic form, property removed is covered for FIVE DAYS.
4: reasonable repairs: reasonable repairs pays for the reasonable costs to make necessary repairs to protect property from FURTHER damage following a covered loss.
5: improvements, alterations, and additions: this provides coverage for insureds who are tenents for improvements or alterations to the dwelling made at the tenants expense. Up to 10% of the coverage C limit is available for this coverage.
6: fire department service charge: pays up to $500 for fire department charges incurred when the fire department is called to save or protect property for my peril insured against. No deductible applies to this coverage.
7: worldwide coverage: provides 10% of the coverage C limit for personal property while it is located anywhere in the world. An example is clothing the insured takes on vacation. - 8: rental value: provides 20% of the Coverage A limit for loss of fair rental value, payable at 1/12th of the 20% limit for each month the described location is unfit for its normal use.
Other structures and rental value are not really other coverages, since they are considered basic policy coverages. They’re listed again in the section to provide additional information about how the coverages apply.
Exclusions
The basic form excludes the following:
1: losses resulting from ordinances or laws that require the insured to test for, monitor, cleanup, or otherwise respond to pollutants, or that require more elaborate or expensive reconstruction or demolition than was used in the original structure (replacing a dwellings regular glass with safety glass is covered)
2: losses resulting from earth movement, including mudslides, sinkholes, and subsidence: does not apply to direct lost by fire or explosion resulting from earth movement
3: war
The basic form excludes the following:
4: water damage in general, including flooding, what are backing up into a building, and water leaking or seeping from below the ground; also excluded is water or water–born material that is discharged from my sump pump or related equipment
5: losses due to power interruption that occurs away from the insured location
6: The insured’s failure to save and preserve property after a loss, or to protect it from loss
7: nuclear hazard
8: losses caused by the insured or by someone else at the insureds direction
9: destruction, confiscation, or seizure of property by the government or public authority
Conditions
The dwelling policy contains many of the property insurance conditions we described in an earlier unit. There are also several conditions concerning how losses will be paid.
1: The LOSS SETTLEENT condition states that covered property losses are valued at actual cash value but her not to exceed the amount necessary to repair or replace.
2: The OUR OPTION condition gives ensure the right to repair or replace damaged property with material or property of like kind and quality within 30 days of receiving the insureds statement of loss.
3: The PAIR OR SET Condition states that in the case of a loss to an item that is part of a pair or set, the insurance company is not obligated to pay the value of the entire set. The company may either repair or replace part of the set or pay the difference between the actual cash value of the property before and after the loss.
4: The loss payment condition states that the loss will be paid within 30 days after reaching an agreement with the insured.
5: The other insurance condition states that if a loss is also covered by other insurance, the insurance company will pay only it’s proportion of the loss.
6: The recovered property condition states that if the insured or insurer recovers property on which the insurer has made loss payment, the other party must be notified. The insured may have the property returned, in which case the lost payments will be adjusted, or allow the company to have it.
7: The deductible clause states that only the amount of loss over the deductible will be paid to come up to the limit of liability.
Identify the perils automatically covered by the basic dwelling form and the additional perils provided by the extended coverage perils
The only perils that are AUTOMATICALLY covered under the basic form are as follows:
1: fire
2: Lightning
3: internal explosion
An internal explosion is an explosion that occurs in the covered building or in the building containing covered personal property. Typical losses would include the explosion of a furnace, stove, or hot water heater.
Steam explosions or excluded if equipment is owned, at least, or operated by the insured.
Extended Coverage (EC) Perils
The insured may opt to be covered against a list of additional barrels that are sometimes called extended coverage perils:
1: riot
2: explosion: The explosion explosion peril…replaces the internal explosion peril that is automatically part of every dwelling policy. The explosion peril encompasses both internal explosions and other types of explosions, such as an explosion at a neighboring location.
3: vehicles: The vehicle peril does not apply to damage caused by a vehicle owned or operated by the insured or a resident of the household. It also does not include vehicle damage to fences, driveways, and walks.
4: Smoke: smoke damage from fireplaces or from agricultural smudging or industrial operations is not covered. The smoke peril covers damage caused by PUFFBACK – the release of soot, smoke, vapor, or fumes from a furnace, boiler, or similar equipment.
5: Hail
6: civil commotion
7: Aircraft
8: windstorm
9: volcanic eruption
Damage to the interior of the building from windstorm or hell is only covered if the wind or hail first makes an opening that allows these elements to enter the building. Awnings, signs, and antennas outside the building are not covered against wind or hail damage.
These perils are already printed in the DP – 1 form. However, no coverage applies unless the insured pays the additional premium and the declarations indicate that the insured has selected the extended coverage perils, which includes the above.
Explain how vandalism and malicious mischief coverage is added to the DP–1
Q
Identify the other coverages provided by the DP–1
Q
Identify situations and perils that are excluded under the dwelling policy
Q
Explain how the lost conditions in the dwelling policy apply;
Q
Compare and contrast the DP – 1, DP – 2, and DP – 3 in terms of the coverage perils, basic policy coverages, other coverages, and valuation provisions.
Q
Describe the coverage provided by the broad theft coverage and personal liability and medical payments to others endorsements
Q
Explain the purpose of the automatic increase in insurance and dwelling under construction endorsements
Q
Covered perils – broad form (DP-2)
Now we’ll look at other dwelling forms and will focus primarily on the differences between these forms and the DP–1
Like the basic form, the broad form (DP-2, DP 00 02) is a named peril policy that lists the perils that dwellings, other structures, and personal property are insured against.
The broad form automatically covers all of the standard and optional perils available on the basic form – fire, lightning, the extended coverage perils, and vandalism and malicious mischief.
It also broadens some peril covered under the basic form and adds additional perils:
1: damage to covered property caused by burglars (does not apply to the theft of property)
2: Weight of ice, snow, or sleet
3: falling objects.
4: freezing of plumbing, heating, air-conditioning, or automatic fire protective sprinkler systems and household appliances (insured must use reasonable care to maintain heat in the building or shut off the water supply and drain all systems and appliances)
5: sudden and accidental tearing apart, cracking, or burning of steam or hot water heating, air-conditioning, or for automatic fire protective sprinkler systems and water heaters.
6: sudden and accidental damage from artificially generated electrical current (does not include damage to a tube, transistor, or similar electrical component)
7: accidental discharge of water or stream at the described location form within a plumbing, heating, air-conditioning, or automatic fire protective sprinkler system or household appliance.
Covered perils – broad form (DP-2) Continued
The weight of ice, snow, or sleet peril does not cover damage to awnings, fences, patios, pavement, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.
The following objects peril does not include damage to awnings, fences, outdoor equipment, or outdoor radio and television antennas, including their lead–in wires, masts, and towers. Damage to a building’s interior or its contents is covered only if the falling object first damages the roof or an exterior wall.
The accidental discharge or overflow peril does not include continuous or repeated leakage or seepage, freezing, or damage to the system or appliance itself.
The burglars and accidental discharge barrels are not covered if the building has been vacant for more than 60 consecutive days.
The broad form also expense coverage for two perils:
1: The vehicles peril covers damage to fences, driveways, and walks when the vehicle is driven by someone who is not a resident of the insureds household. It also covers damage to other types of property when the vehicle was driven when insured or a resident of the insureds household.
2: The smoke peril includes loss caused by fireplace smoke.
Remember that the DP–1 covers fire or explosion that results from earth movement.
The DP–2 in the DP–3, also cover breakage of glass or safety glazing material that is part of a building, storm door, or storm window that results from earth movement.
Covered Perils – Special Form (DP-3, DP 00 03)
The special form (DP-3, DP 00 03) provides (coverage on the dwelling and other structures, insurance against all risks of direct physical loss that are not specifically excluded in the policy. Personal property is covered under named Pearl basis – – the same pearls listed in the DP–2.
Under coverages a and B, the special form excludes:
1: all property, losses, and perils not covered due to limitations of the general exclusions (as described earlier in relation to the basic form) and the insuring agreement;
2: any loss involving collapse, other than as provided in the other coverages section;
3: freezing of a plumbing, heating, air-conditioning, or automatic fire protective sprinkler system or a household appliance, or overflow due to freezing, unless reasonable care was taken to maintain heat in the building or to shut off the water supply and drain the systems and appliances;
4: freezing, thawing, pressure, or weight of water or ice to fences, pavement, patios, swimming pools, foundations, retaining walls, bulkheads, peers, wharves, or docks;
5: theft in or to a dwelling or structure under construction, or theft to any property that is not part of a covered building or structure;
6: damaged by wind, hail, ice, snow, or sleet to outdoor radio and television antennas and aerials, including their lead us in wires, masts, or towers, and damage to the same perils to lawns, trees, shrubs, or plants;
7: vandalism, malicious mischief, theft, and attempted theft if the dwelling has been vacant for more than 60 consecutive days at the time of loss;
8: Constant or repeated seepage or leakage of water or steam over time from plumbing, heating, air-conditioning, or fire protective sprinkler system or from household appliance;
9: gradual and expected losses, such as wear and tear, deterioration, inherent vice, latent defect, mechanical breakdown, smog, rust, corrosion, mold, wet or dry rot, and smoke from agricultural smudging or industrial operations;
10: discharge, dispersal, seepage, migration, release, or escape of pollutants such as smoke, vapor, suit, fumes, acids, chemicals, and waste;
11: Setting, drinking, bulging or expansion, including resulting cracking of pavements, foundations, walls, floors, roofs, or ceilings; and
12: loss caused by birds, vermin, insects, and domestic animals.
If a loss that is not otherwise excluded involves water damage from a plumbing, heating, air-conditioning, or fire protective sprinkler system or household appliance, the policy covers the loss caused by the water and the cost of tearing out and replacing any part of the building necessary to repair the system or appliance. Loss to the system or appliance itself is not covered.
Broad form (DP–2 and Special form (DP–3)
Basic Policy Coverages
The DP–2 and DP–3 also include Coverage E –– additional living expense.
Coverage E pays for additional living expenses the insured incurs after a covered loss, including reasonable motel, dining, laundry, and transportation expenses.
These are covered for the time needed to repair or replace the damaged property or become settled elsewhere in permanent quarters. If a Civil Authority prohibits the use of the insured property because a covered peril damaged a neighboring location, payments are limited to a maximum of two weeks. (Note that this coverage can be added to the DP–1 by endorsement.)
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Broad form (DP–2 and Special form (DP–3)
Other Coverages
The DP–2 and DP–3 include some other coverages that are not contained in the DP–1.
Trees, shrubs, and other plants pays up to 5% of the Coverage A limit for damage to trees, shrubs, plants, or lawns caused by a specified list of perils.
The policy will not pay more than $500 for damage to any one tree, shrub, or plant.
Broad form (DP–2 and Special form (DP–3)
Other Coverages (cont.)
Collapse pays for the collapse of the dwelling caused by a specified list of pearls. To be considered a clips, lost must involve the building or part of the building abruptly full and Donna came in, after which the building or part of the building cannot be occupied. Collapse the results from hidden decay or hidden insect or vermin damage is not covered if the insured knew about the damage before the building collapsed.
Broad form (DP–2 and Special form (DP–3)
Other Coverages (cont.)
Glass or safety grazing material pays for the breakage of glass or safety glazing material and damage to covered property caused by glass breakage.
The ordinance or law coverage at Lowe’s payment up to 10% of the Coverage A limit of liability for the increased cost to repair or rebuild a dwelling or other structure to conform with applicable building and land use codes.
In the DP–2 and DP–3, property removed is covered for 30 days. In the DP–1, it is covered for only five days.
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Dwelling Insurance: Broad form (DP–2 and Special form (DP–3)
Replacement Cost Coverage
Both the DP–2 and the DP–3 settle losses to a personal property at actual cash value.
Losses to the dwelling and other structures, however, are paid on a replacement cost basis, with no deduction for depreciation, as long as the insured carries insurance equal to 80% or more of the full replacement cost of the building at the time of the loss.
Suppose and insureds home has a replacement value of $100,000. To have the whole restored or replaced at replacement cost, the insured must have insurance equal to or greater than 80% of $100,000, or $80,000.
Of course, the insured can never receive more than the policy limit.
Proportional replacement cost is calculated by dividing the amount of insurance the insured carries by the amount he was required to carry to qualify for replacement cost coverage.
The figure that results is multiplied by the amount of the loss to determine the amount of reimbursement. Here’s how it looks as a formula:
(Insurance carried/Insurance required) * amount of loss = amount of reimbursement
Replacement Cost Coverage (cont)
Supposing an insureds home has a replacement value of $100,000. This insured has $60,000 in coverage instead of the $80,000 needed to qualify for replacement cost coverage. The Insured has a $16,000 loss. Using using the proportional method, reimbursement would be:
$60,000/$80,000 = .75 (3/4).
.75 * $16,000 = $12,000
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Dwelling forms comparison
Basic Policy Coverages
Coverage: Coverage A – Dwelling. Coverage B – Other Structures Coverage C – Personal Property Coverage D – Fair Rental Value Coverage E – Additional Living Expense: By endorsement in DP–1 only; all other coverages above A, B, C, and D are included in DP–1; DP–2 and DP–3
Other Coverage
1: other structures **
2: Debris removal
3: improvements, alterations, additions
4: worldwide coverage
5: rental value **
6: fire department service charge
7: reasonable repairs
8: property removed
9 to 12 are not included in DP–1; all others are included in DP–1; DP–2; and DP–3
9: trees, shrubs and other plants
10: collapse
11: Glass or safety glazing material
12: ordinance or law
** listed as both a Basic Policy Coverage and an Other Coverage
See photos for “7.5 Dwelling Forms Comparison
See photo for 7.5 dwelling forms comparison (cont.)
Broad theft coverage
The “broad theft coverage endorsement” add’s coverage for theft of personal property to the dwelling policy. It may be written for an owner – occupied dwelling or an apartment occupied by a tenant who is the named insured.
The endorsement covers theft, attempted theft and vandalism, and malicious mischief as a result of theft or attempted theft. V&MM is not covered if the dwelling is vacant for more than 60 consecutive days immediately before the loss.
Property may be covered while on or off the premises. Separate limits of liability applied for on– and off–premises coverage, and off–premises coverage is available only if on-premises coverage is written.
Broad theft coverage (cont.)
The following is not covered:
1: animals, birds, and fish
2: Credit cards and fund transfer
3: property while in the mail
4: Aircraft and parts, other than model or hobby aircraft
5: property held as a sample or for sale or delivery after sale
6: property separately described and specifically insured by other insurance
7: property of tenants, roomers, and borders that are not related to the insured
8: Business property of an insured or residence employee
9: property that is in the custody of a laundry, tailor, or cleaner (except for loss by burglary or robbery)
10: Motor vehicles in their equipment (does not apply to vehicles used to service the location or to assist those with disabilities)
Broad theft coverage (cont.)
Special limits of liability apply to the following classes of property:
1: $200 for money or related property, coins, and precious metals
2: $1500 for securities, manuscripts, and valuable paper property
3: $1500 for watercraft, including trailers and equipment
4: $1500 for trailers not used with watercraft
5: $1500 for jewelry, watches, first, and precious and semi-precious stones
6: $2500 for firearms
7: $2500 for silverware, goldware, or pewterware
The insured is required to notify the police want to theft loss occurs
Personal liability and medical payments to others
Coverages
Coverage L – Personal Liability provides coverage for damages that the insured becomes legally obligated to pay because of an occurrence to which the coverage applies that causes bodily injury or property damage. The insurer will also defend the insured against such claims that it’s an expense, even if the suit is groundless or fraudulent. The policy limit is $100,000
Under “Coverage M - Medical Payments To Others”, The insurer will pay all necessary medical expenses incurred within three years of an accident that causes bodily injury.
This coverage a place to injury sustained well the injured party is:
– on the insured location with the insured’s permission; or
– off the insured location if the injury arises out of a condition that is:
A: on the insured location,
B: caused by the activities of the insured, or
C: caused by an animal in the insureds care
There is a limit of $1000 per person under this coverage. The insured does not have to be legally liable for coverage to apply. Coverage does not apply to any injuries sustained by the insured or the insured’s family members.
