Final answer:
The DP-2 broad form pays for damage to the dwelling on a replacement cost basis.
Step-by-step explanation:
In the event of a loss, the DP-2 broad form pays for damage to the dwelling on a replacement cost basis. This means that the insurance company will cover the cost of rebuilding or repairing the dwelling without deducting for depreciation. The policyholder will receive the full amount needed to replace or repair the damaged dwelling, up to the policy limit.
For example, if a house insured under a DP-2 broad form policy is damaged by a fire, the insurance company will pay for the cost of rebuilding the house to its original condition, or the cost of repairing the damage, whichever is less.