Dwelling Policy Practice Test

Replacement cost coverage is available in both broad and special form dwelling policies if:

1. The insured lives in the dwelling

2. The amount of insurance is at least 80% of the dwelling’s replacement cost

3. The dwelling is the only property owned

4. The property is newly constructed

The correct answer is: The amount of insurance is at least 80% of the dwelling’s replacement cost

Replacement cost coverage is available in both broad and special form dwelling policies when the amount of insurance is at least 80% of the dwelling’s replacement cost. This requirement ensures that the policyholder has sufficient coverage to fully replace the dwelling in the event of a loss. If the insurance coverage is below this threshold, the policy may instead pay out based on actual cash value, which factors in depreciation and may not cover the complete cost to rebuild or repair the dwelling. The focus on an adequate insurance amount is essential in mitigating the risk of underinsurance, which can leave the homeowner vulnerable financially if a significant loss occurs. By maintaining insurance coverage at or above the 80% mark, homeowners can safeguard their financial stability and ensure that they are adequately prepared for potential property damage.