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A fire renders an HO-3 insured's home uninhabitable for four months. Coverage D (Loss of Use) on the policy is set at the standard HO-3 default percentage of Coverage A. Which statement is MOST accurate about what Coverage D reimburses?

AIt reimburses the diminution in market value of the home caused by the loss, paid as a lump sum once repairs are complete
It reimburses additional living expense and/or fair rental value needed to maintain the household's normal standard of living, up to the policy limit and repair period
CIt reimburses 100% of the insured's pre-loss rent or full mortgage principal-and-interest payments for the entire time the home is being rebuilt, without any policy sublimit or percentage cap
DIt reimburses only documented hotel lodging bills and provides no allowance for restaurant meals, pet boarding, or extra commuting

Why this is the answer

Coverage D (Loss of Use) on the ISO HO-3 reimburses the necessary increase in living expenses (ALE) and/or fair rental value when a covered peril renders the residence uninhabitable. The standard default limit is 30% of Coverage A. The measure is what the household must spend OVER normal expenses to maintain its standard of living — temporary rent even though the mortgage payment continues, restaurant meals net of normal grocery spend, pet boarding, laundry, extra commuting. Reimbursement runs for the shortest time required to repair/replace the dwelling or for the household to permanently relocate (ISO HO 00 03 Section I — Coverage D).

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