Rhode Island Insurance Adjuster Exam

What is a key feature of a DP-3 policy?

1. It covers only tornado and flood damage

2. It is a basic form of liability insurance

3. It requires the insured to purchase at least 80% of the home value

4. It is limited to personal property insurance

The correct answer is: It requires the insured to purchase at least 80% of the home value

The DP-3 policy, also known as a Dwelling Property 3 policy, is distinctive because it provides coverage on an open-peril basis for the dwelling and other structures. A key feature of this policy is the requirement for the insured to maintain coverage of at least 80% of the home’s value to ensure full replacement in case of a loss. This concept of maintaining a certain level of insurance helps protect both the insurer and the insured from significant out-of-pocket costs in the event a claim is made. The other options do not accurately represent the features of a DP-3 policy. While it does cover various types of risks, it is not restricted to just tornado and flood damage, nor does it provide solely personal property coverage. Additionally, the DP-3 policy is not primarily a liability insurance product, but rather it focuses on property protection. The requirement of maintaining at least 80% of the home’s value is crucial for the policy’s effectiveness and is a common practice in property insurance to avoid penalties in coverage during a claim.