Which type of coverage settles losses at replacement cost if insured at 80% of value?

The correct answer is based on the recognition that both DP 2 and DP 3 forms provide coverage that settles losses on a replacement cost basis, provided the property is insured for at least 80% of its value. Replacement cost coverage means that in the event of a covered loss, the insurance will pay for the cost to replace the damaged property without deducting for depreciation, as long as the insured value meets the stipulated percentage of the property's actual value.

The DP 2 (Broad Form) and DP 3 (Special Form) policies are designed for dwellings and offer more comprehensive coverage than the DP 1 (Basic Form) policy. The DP 1 typically pays losses based on actual cash value, which takes depreciation into account, rather than replacement costs. In contrast, DP 2 and DP 3 provide enhanced coverage options, including protection against a wider range of perils and the opportunity for replacement cost settlement when the specified coverage limits are maintained.

Therefore, choosing both DP 2 and DP 3 acknowledges that these policy forms fulfill the condition of settling at replacement cost when the property is properly insured, making this choice the correct one.