Texas General Lines — Property and CasualtyPersonal LinesMedium
A client has a DP-1 Basic Form Dwelling Policy. A lightning strike causes a fire that destroys the dwelling. The dwelling had an Actual Cash Value (ACV) of $150,000 and a Replacement Cost (RC) of $200,000 at the time of loss. The policy has a Coverage A limit of $180,000. How much will the DP-1 policy pay for the dwelling loss, assuming no deductible?
- A$180,000
- BNothing, as lightning is not a covered peril in DP-1.
- C$200,000
- D$150,000
Show answer & explanationAnswer & explanation
Correct answer: D. $150,000
The DP-1 Basic Form Dwelling Policy typically covers fire, lightning, and internal explosion. However, it values losses to the dwelling on an Actual Cash Value (ACV) basis. Therefore, the policy will pay the ACV of $150,000, as this is less than the Coverage A limit of $180,000.
Why the other options are wrong
- A. This is the policy limit, but ACV is lower and is the payment basis for DP-1.
- B. Lightning is a standard covered peril under the DP-1 Basic Form.
- C. This is the Replacement Cost, which is not applicable for DP-1 dwelling coverage.
DP-1 Valuation (Dwelling)
The DP-1 Basic Form Dwelling Policy values dwelling losses on an Actual Cash Value (ACV) basis, meaning replacement cost less depreciation.
- ACV is the standard payment method for dwelling losses.
- Covers basic named perils like fire and lightning.
- Does not offer replacement cost coverage for the dwelling.
Memory trick: DP-1 is basic, so it pays 'ACV' for the house, not shiny new parts.