South Carolina Personal Lines Practice Exam

Which DP forms provide coverage for the replacement cost of a dwelling?

1. DP-1 and DP-2

2. DP-2 and DP-3

3. DP-3 and DP-4

4. DP-1 and DP-4

The correct answer is: DP-2 and DP-3

The correct choice focuses on the DP-2 and DP-3 forms, both of which provide coverage for the replacement cost of a dwelling. The DP-2 form, also known as the Broad Form, covers a wider range of risks than the DP-1, including additional perils and providing replacement cost coverage for the dwelling itself. This means if a covered event damages the property, the insurer would compensate the property owner for the cost of replacing the damaged structure without deducting for depreciation, as long as certain conditions are met. The DP-3 form, known as the Special Form, offers even broader coverage, typically covering all risks except those specifically excluded in the policy. This form provides replacement cost coverage as well, ensuring that if the dwelling is damaged or destroyed, the compensation received will cover the full cost to replace the home. In contrast, the DP-1 form provides actual cash value coverage, which means it pays claims based on the depreciated value of the property rather than the replacement cost. Similarly, there is no current contestable DP-4 form regarding personal property coverage in standard personal lines insurance for dwellings. Therefore, the combination of DP-2 and DP-3 is essential for ensuring full replacement cost coverage for a dwelling