Dwelling Policy Practice Exam – Prep, Study Guide & Practice Questions

The correct answer highlights that both the DP-2 (Broad Form) and DP-3 (Special Form) dwelling coverage options provide replacement cost coverage for the dwelling, which is a significant benefit for policyholders.

In the case of the DP-2 policy, it covers a broader range of perils compared to the DP-1 (Basic Form) and offers replacement cost coverage for the dwelling as long as the insured maintains insurance equal to at least 80% of the replacement cost at the time of loss. This means that in the event of a covered loss, the insurer would reimburse the actual cost to repair or replace the damaged structure without depreciation deductions, as long as the coverage requirements are met.

Similarly, the DP-3 policy takes it a step further by offering open peril coverage for the dwelling, which means it covers all risks except those specifically excluded in the policy. Like the DP-2, it allows for replacement cost valuation of the dwelling, ensuring that the policyholder can rebuild or repair their home to its original condition without a depreciation penalty.

In contrast, the DP-1 policy only offers actual cash value (ACV) coverage for the dwelling, which accounts for depreciation. This means that policyholders may not receive enough reimbursement to