- DP-1 home insurance is best suited for properties that will be left vacant for longer periods of time.
- DP-1 and DP-2 policies are named perils policies while the DP-3 policy is an open perils policy.
- DP-3 insurance policies are the most encompassing and most customizable of the three forms, also making it the most expensive of the three forms.
What do DP-1, DP-2, and DP-3 insurance policies have in common?
While the three policies have a number of differences among them, they also have some items in common. Their commonalities include some of the perils that they cover and excluded perils they don’t cover. All three policies include dwelling coverage and other structures coverage.
All three policies will cover the dwelling building, attached structures, and other structures on the property to some extent. This is the case across all home insurance policies. To what extent those structures are covered and how they are reimbursed differs though.
Some standard perils that are covered in most home insurance policies are covered in all three dwelling property policies. These perils include:
- Fire and lightning
- Smoke damage
- Explosions
- Wind and hail damage
- Damage from vehicles
- Damage from aircraft
- Riots or civil commotion
- Volcanic eruptions
There are some standard perils that are not covered across each of the three forms including:
- Legal ordinance
- Water backup
- Intentional damage
- Mold
- War
- Nuclear hazard
- Flooding
- Earthquakes and other ground movement
- Power failure
- Neglect
- Normal wear and tear
It is here, though, that the policies begin to differ.
What are the differences between DP1, DP2, and DP3 policies?
Claim reimbursements
There is one major difference between DP-2 and 3 and DP-1. This difference is how a claim is paid out to the homeowner. In DP-1 insurance the entire policy is on an actual cash value basis, meaning that depreciation in the value of the dwelling or a structure on the property over time, is factored in to decrease the maximum amount that will be reimbursed to the landlord for a covered claim. This implies that over time, the dollar amount of coverage declines.
In DP-2 and DP-3 policies, the other reimbursement method of replacement cost value is used. This form of payout method provides greater protection to a homeowner as time goes on, in comparison to the actual cash value basis. Replacement cost value reimbursement does not factor in depreciation in value as time goes on. This means that even if the damage occurs ten years later, the original maximum amount stated in the policy will still be the maximum dollar amount paid out. This is an especially big difference for owners of older homes. Owners of older homes will want to make sure they have a replacement cost value policy.
Named perils vs open perils policies
There is a major difference between DP-1 and 2 policies and DP-3 policies. This difference is how perils are covered in the policies. There are two ways that perils are covered in a home insurance policy: named perils basis and open perils basis. DP 1 and 2 home insurance policies cover perils on a named perils basis. This means that the perils that are covered in the policies must be specifically named within the policy. All other perils not specifically included will be excluded from coverage. This is less encompassing than the open perils basis.
DP-3 home insurance is an open perils policy, meaning that all perils are covered unless explicitly excluded from coverage in the policy. This leads to farther-reaching coverage as any number of perils may be covered, whereas only a handful would be excluded.
DP-1 vs DP-2 covered perils
It is important to keep in mind that not all named-peril policies are made equal. DP-1 and DP-2 are both named perils, but the amount perils that are included in that coverage differ. DP1 insurance typically has nine covered perils like those listed above, whereas DP-2 typically covers 17 different named perils. This makes DP-2 a more encompassing policy than DP-1. Some common perils covered under DP-2, but not DP-1 are:
- Falling objects
- Frozen pipes
- Theft
- Vandalism
- Broken glass
- Accidental discharge of water or steam
- Weight of ice, snow, or sleet
- Cracking, bulging, or tearing of built-in appliances
- Collapse
Differences in cost among the three forms of dwelling property insurance
The differences between the policies that are listed above lead to a difference in premium cost to the landlord as well. DP-1 policies provide the least amount of protection and therefore cost the least of the three. DP-3 policies provide the most protection and therefore cost the most of the three forms. DP-2 is in the middle in terms of protection and therefore is somewhere in the middle in terms of the premium cost to the homeowner.
Premiums can vary dramatically from location to location. The national average for standard home insurance, according to insurance.com, is somewhere just below $2,300 per year. The dwelling property insurance policies are usually more expensive compared to their standard home insurance policy counterparts, due to the DP policies being designed for homes that will be occupied by tenants that are not the homeowner and for homes that will be left vacant for longer periods of time. These two differences open up the home to more risk as minor issues can become major issues if not noticed right away or not disseminated to the homeowner right away. With that in mind, insurance companies ask for a higher premium payment to better protect themselves. DP-1 and maybe even DP-2 will fall somewhere below that national average for homeowners insurance, but the DP-3 will most likely end up above that cost.
DP-3 can become especially expensive depending on to what extent the landlord customizes the policy. There is a plethora of riders and endorsements that a homeowner can add to a DP-3 policy to best suit their needs. These coverage add-ons may include:
- Personal liability
- Ordinance or law
- Water backup
- Short-term rental
- Roof surfacing payment schedule
- Fair rental value
Fair rental value is an especially important add-on as it helps reimburse the homeowner for lost rental income that they would have received had the property not been damaged and a tenant would have been able to rent it out.
Which policy is right for me?
It can be tough to determine which policy is the right for you in your specific situation. Generally speaking, if the home is left vacant for a long period of time or is not actively rented, DP-1 home insurance is the best option for you. If you are actively renting the property out and are looking for adequate coverage, but also want to keep costs low, DP-2 is probably the policy for you. If you are actively renting the property out or have a home with an old roof and are looking for the best protection you can get, DP-3 is the policy that makes the most sense. Of course, talk with your insurance agent about your specific set of circumstances so that you can determine which policy is the right fit and what options are available to you.
