In the world of property insurance, not all policies are created equal—especially when it comes to rental properties or non-owner-occupied homes. If you are looking at Dwelling Fire policies, you’ll likely encounter the choice between a DP1 and a DP3.
While they might sound like minor variations, the difference between them can be the difference between a covered repair and a total financial loss. Here is the breakdown of what they are and why the distinction matters for your portfolio.
The DP1: Basic and Budget-Friendly
The DP1 (Basic Form) is the most simplified insurance policy available. It is a “named perils” policy, meaning it only covers losses specifically listed in the contract.
- What it usually covers: Fire, lightning, and internal explosions.
- The Caveat: Many common issues—like water damage from a burst pipe or vandalism—are often not covered unless you pay extra for endorsements.
- Payout Style: Usually settled at Actual Cash Value (ACV). This means if your 20-year-old roof is destroyed, the insurance company subtracts depreciation from the payout, leaving you to cover a significant portion of the replacement cost.
The DP3: Comprehensive and Secure
The DP3 (Special Form) is the “gold standard” for landlord insurance. It is an “open perils” policy, which is a fancy way of saying it covers everything unless the policy explicitly excludes it.+1
- What it covers: Everything in a DP1, plus things like theft, falling objects, weight of ice/snow, and accidental water damage.
- The Advantage: It typically pays out at Replacement Cost Value (RCV). If that same 20-year-old roof is destroyed, the policy pays for a brand-new roof at today’s prices (minus your deductible).+1
- Loss of Rent: DP3 policies often include better coverage for “Fair Rental Value,” ensuring you still get paid if your tenants have to move out due to a covered claim
Why Should You Care?
As an investor or a homeowner, your property is a “financial architect’s” dream or nightmare depending on how it’s protected. Choosing a DP1 to save a few hundred dollars a year in premiums can backfire instantly if a pipe bursts or a storm hits.
The Bottom Line: A DP1 is a “safety net” with large holes. A DP3 is a solid floor. If you want to treat your real estate like a true business, the DP3 provides the peace of mind and financial security required to protect your long-term ROI.
Standard DP1 policies typically cover the following 9 perils, often grouped into two categories: Basic Coverage and Extended Coverage.
1. Basic Perils (The Foundation)
These are almost always included in every DP1 policy:
- Fire: Damage from flames or high heat.
- Lightning: Direct strikes to the structure.
- Internal Explosion: Explosions that occur inside the dwelling (e.g., a furnace or water heater).
2. Extended Coverage Perils
While these are common, some carriers require an “Extended Coverage” (EC) endorsement to include them:
- Windstorm: Damage from high winds or hurricanes (usually excluding flood).
- Hail: Impact damage from ice pellets.
- Explosion: External explosions (those occurring outside the home).
- Riot or Civil Commotion: Damage caused by a group of people or public disorder.
- Aircraft: Damage from planes or objects falling from them.
- Vehicles: Damage caused by a car or truck hitting the structure (excluding vehicles owned/operated by the insured).
- Smoke: Sudden and accidental smoke damage (excluding smoke from fireplaces or industrial operations).
- Volcanic Eruption: Damage from ash, dust, or lava flow (excludes earthquake/tremors).
Important “Missing” Perils
It’s just as important to know what a DP1 does not cover compared to a DP3. Unless you add a specific endorsement, the following are usually excluded:
- Vandalism & Malicious Mischief (VMM): This is a huge risk for vacant homes and must almost always be added as an extra endorsement.
- Water Damage: Burst pipes, appliance leaks, or freezing are generally NOT covered.
- Theft: Damage to the structure caused by burglars or the theft of property is typically excluded.