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What are DP Insurance Policies

what is a dwelling policy

When it comes to homeowner’s insurance, there are two major types of policies: homeowner’s policies and dwelling policies. Homeowner’s policies are for homeowners who live in their primary residence and include plans like HO-3 and HO-5 policies.

Dwelling policies, on the other hand, are for a property that is not occupied by the owner. Since homeowners that do not live in their properties have different risks than homeowners that do, they are insured according to different policies.

What Is a Dwelling Policy?

A dwelling policy (DP) is a kind of homeowner’s insurance used to cover a house or building that the owner does not live in. Dwelling policies do not offer as much comprehensive coverage as homeowner policies, and they are usually reserved for properties that are judged too risky for standard homeowner’s policies.

For example, dwelling policies are often used by landlords that own rental properties. Since landlords often do not live in the buildings they own, they cannot get a standard homeowner’s policy because they face a different level of risk.

The general rule of thumb is, if the owner does not live there as their primary residence, then it needs to be insured with a dwelling policy. Some examples of properties that may require a dwelling policy include:

  • Vacation homes
  • Rental properties
  • Certain mobile homes
  • Buildings under construction

Keep in mind that a “dwelling policy” is different than “dwelling coverage.” “Dwelling coverage” refers to the portion of your insurance plan that specifies dwelling protections, sometimes called Coverage A. All homeowner’s insurance plans have some f of dwelling coverage. “Dwelling policy” refers specifically to insurance plans that are for owners who do not live in the property.

 

Types of DP Insurance

There are three main types of DP insurance: DP-1, DP-2, and DP-3. Each kind of policy has different levels of coverage.

DP-1

DP-1 policies are the simplest type of dwelling policy. DP-1 policies are sometimes called “Dwelling Fire Form 1” insurance, and they only offer very basic protections on your house. DP-1 policies are “named-peril” policies, meaning that they only cover damages that are caused by an event that is explicitly named in the agreement. If your dwelling is damaged by an event not on the list, then it won’t be covered.

Common perils included on DP-1 agreements include:

  •  Fire & lightning
  •  Explosions
  •  Hail and windstorm
  •  Smoke damage
  •  Aircraft damage
  •  Vehicle damage
  •  Volcanoes
  •  Vandalism

 

Keep in mind that not all DP-1 policies will cover the named perils on this list. For instance, protection from vandalism and intentional mischief may not be covered, but you might be able to purchase an endorsement for extra coverage.

DP-1 policies are almost always actual cash value policies. This means that any damaged structures will be replaced at their current estimated value. Actual cash policies take depreciation of the asset into account which means that you can end up being reimbursed for less than what you originally paid for.

Since DP-1 insurance is the least comprehensive, it is usually the cheapest dwelling policy option.

DP-2

DP-2 policies offer slightly more protection than DP-1 policies and provide decent coverage for most landlords. DP-2 insurance is a “middle of the road” policy between bare-bones DP-1 insurance and broad DP-3 coverage.

Like DP-1 policies, DP-2 policies are named peril policies. This means they only insure your dwelling from events explicitly listed in the insurance agreement. DP-2 policies generally include the same named-perils as DP-1 policies, with a few more. Common extra coverage offered in DP-2 plans includes:

  •  Burglary damage
  •  Ice snow and sleet weight damage
  •  Falling objects
  •  Freezing
  •  Electrical damage
  •  Cracking, bulging or breaking of home systems
  •  Water or steam discharge
  •  Structural collapse

Unlike DP-1 plans, which are actual cash value policies, DP-2 policies are replacement cost policies. This means that a DP-2 policy will cover the full replacement of any damaged materials and fixtures. Replacement cost does not factor depreciation into calculations. The damaged asset is replaced with an identical copy at its current market value. So if your walls are damaged by an explosion, then DP-2 insurance will pay to replace the walls with identical materials at their current cost.

DP-2 plans often offer and may include loss of rent protections. This means that you will be insured and lost rental income in case one of your rental properties is rendered uninhabitable. Loss of rent coverage protects landlords from losing all their rental income in case of a disastrous event.

Keep in mind that DP-2 policies will often not cover listed perils if the home has been vacant for some time. DP-2 policies are best for landlords who have minimal risk but a steady stream of rental income and tenants living in their buildings.

DP-3

DP-3 insurance is the most comprehensive dwelling policy available. DP-3 insurance is normally considered the best kind of homeowner’s insurance for landlords and offers a wide amount of protections. DP-3 policies are also available to homeowners who live in the residence but usually are discouraged as they provide fewer protections than standard homeowner’s policies like HO-3 and HO-5 policies.

DP-3 perils are “open-policy” perils. Unlike named peril policies that only cover perils named on the list, open-peril policies cover any event except for those that are included in the insurance agreement. The difference between named-peril and open-peril policies is targeted vs umbrella coverage.

Common perils excluded from DP-3 plans include:

  •  Government action or ordinance
  •  Earthquakes
  •  Power failure
  •  Neglect
  •  Intentional damage
  •  Mold, fungus, rot
  •  Pet damage
  •  Pest or rodent damage

 

Your particular DP-3 plan may include more exclusions. Make sure you are absolutely certain what is and isn’t covered in your policy.

DP-3 policies are replacement cost policies meaning that they replace damaged assets with identical materials at current market cost. DP-3 insurance also includes loss of rent coverage which will reimburse you for any lost rental income if a disaster forces your tenants to move out.

DP-3 policies can be considered analogous to standard HO-3 policies. Like HO-3 policies, DP-3 policies also offer landlords liability coverage. If a person is injured while living in one of your rental properties and sues, then liability coverage will absorb some or all of the legal fees and damages. There are also usually offers that add medical cost coverage so you can pay for the medical expenses of anyone injured while in one of your properties.

DP-3 policies also usually offer some protection for personal property, though it is usually limited to large items such as refrigerators, washing machines, etc.). This is one area where DP-3 policies substantially differ from standard HO-3 policies.

Should I Get DP Insurance?

If you own a home that you do not use as your primary residence, or you own rental properties, then you absolutely should get DP insurance. Landlords cannot normally get standard homeowner’s policies, so dwelling policies are meant to fill that void. A DP-1 policy will provide you with the absolute minimum coverage, while a DP-3 policy offers the most comprehensive insurance for landlords.

If you are currently shopping around for insurance, consider using our insurance lookup tool you can compare and contrast quotes from the top home insurance companies to find a quote that works for you and your home.

 

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For more information about how homeowners’ works and to see which type is right for you, please contact us through our website or call 800-712-8519 during normal business hours.

 

Frequently Asked Questions

What is a DP policy?

A dwelling policy (DP) is a kind of homeowner’s insurance used to cover a house or building that the owner does not live in. Dwelling policies do not offer as much comprehensive coverage as homeowner policies, and they are usually reserved for properties that are judged too risky for standard homeowner’s policies.

Should I buy a DP policy?

If you own a home that you do not use as your primary residence, or you own rental properties, then you absolutely should get DP insurance. Landlords cannot normally get standard homeowner’s policies, so dwelling policies are meant to fill that void.

What are some events NOT covered by a DP-3 policy?

Common perils excluded from DP-3 plans include:
 Government action or ordinance
 Earthquakes
 Power failure
 Neglect
 Intentional damage
 Mold, fungus, rot
 Pet damage
 Pest or rodent damage

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