Dwelling Policy Practice Test

What is the method of obtaining automatic increase in insurance under dwelling policies?

1. Coverage by modification

2. Coverage by endorsement

3. Coverage by exclusion

4. Coverage by appendage

The correct answer is: Coverage by endorsement

The method of obtaining an automatic increase in insurance under dwelling policies is through coverage by endorsement. An endorsement is a document that modifies the original insurance policy; it can add coverage, change the terms of coverage, or alter the limits. In the context of dwelling policies, an endorsement can be specifically applied to adjust the coverage amounts to keep pace with inflation or changes in the property's value over time. This ensures that the policyholder maintains adequate coverage without needing to update the policy frequently or request new coverage on an annual basis. Other methods mentioned, such as modification, exclusion, or appendage, do not accurately describe the process for automatically adjusting coverage. Modification generally refers to changes in the terms of a policy, exclusions pertain to specific items that are not covered, and appendage is not a commonly recognized term in insurance that refers to increasing coverage. Therefore, endorsement stands out as the proper and standard method utilized in dwelling policies for maintaining adequate protection against potential risks associated with property value fluctuations.