Dwelling property insurance policies are landlord insurance policies. There are three variations DP-1, DP-2, and DP-3. DP-1 insurance is the most basic form of the three and is most commonly used for vacant homes.
- DP-1 insurance is the most basic form of landlord insurance policy and is typically the least expensive.
- DP-1 insurance is a named perils and actual cash value basis policy making it a good option for newer homes, but not for older homes.
- DP-1 policies can be used for rental properties, but do not cover property loss for tenants.
What exactly is a DP-1 insurance policy?
DP-1 home insurance policies, also known as dwelling fire form 1, is the most basic form of home insurance that is used by landlords of a vacant or rental property. DP-1 policies are on a named perils basis as well as an actual cash value basis. This form of policy is most commonly used to insure houses that are left vacant most of the time but can also be used to insure rental properties.
What is covered by a DP-1 insurance policy?
As mentioned above, DP-1 policies are on a named perils basis, meaning that they cover perils that are specifically listed in the policy while all other perils are excluded.
DP-1 policies typically cover nine named perils. These include:
- Fire and lightning
- Explosions
- Wind damage
- Hail damage
- Riots
- Smoke damage
- Damage from aircrafts
- Damage from vehicles
- Volcanic eruptions
The standard DP-1 policy usually covers the dwelling itself and any attached structures, other structures like a shed or detached garage, personal property, and the fair rental value of the dwelling or building. Normally personal liability and medical payments to other coverages, which are included in standard home insurance policies, aren’t covered under a standard DP-1 home insurance policy. These coverages can be added on though.
DP-1 rental property insurance is essentially the equivalent of an HO-1 or HO-2 policy if a homeowner is looking for a comparison.
Claim reimbursements under DP-1 insurance
DP-1 policies have an actual cash value maximum coverage limit. This means that depreciation is factored into the maximum amount that will be paid out for a covered claim. Depreciation is an accounting term for a decline in the useful life and therefore the value of a dwelling, structure, or something else of use. There are IRS standards for the useful life that should be used among various categories of items including dwellings and other structures.
When a claim is paid out on an actual cash value basis, over time the coverage limit in the policy essentially goes down.
Here is an example of how this works. Say the dwelling is originally insured for a maximum of $250,000 and ten years later a fire happens that destroys the dwelling. Let’s say that the depreciation in value for the dwelling over time is $10,000 per year. This means that the maximum amount that would be paid out when the damage occurred in year ten, would be $150,000, not the $250,000 originally stated in the policy. Let’s say that the home was going to take $350,000 restore to a similar condition as it was before the damage. This means that the insurance company would cover the first $150,000 and then the homeowner would be paying out of pocket for the additional $200,000 that would be needed to replace the dwelling.
Actual cash value basis policies are typically not the best policies for older homes as the useful life for those homes is towards the end or past the end. If the landlord or homeowner is looking to save some money on their home insurance or DP policy, actual cash value basis policies will be the cheapest option.
What is not covered by a DP-1 insurance policy?
Since DP-1 policies are the most basic form, they are also the policies that have the most amount of risk not covered. There are many common damages that are not covered, including:
- Frozen pipes
- Falling objects
- Power surges
- Theft or vandalism
Theft and vandalism perils are especially important to keep in mind due to DP-1 being designed to protect homes that are unoccupied. Homes that are unoccupied for long periods of time are more susceptible to theft and vandalism. If you are looking for more peace of mind, check with your insurance agent to see if coverage for vandalism or theft can be added to the policy. It may also make more sense for you to go with a DP-2 or DP-3 policy to protect against these types of risks.
When does it make sense to own a DP1 policy?
A simple way to answer this question is to think about if you own a home that you do not occupy. If own a property you do not live in and no one else currently lives in it then you are most likely a person who could use a DP1 insurance policy. Some common instances where this might be the case are:
- You own a vacant property
- You have a small and strict budget for a rental property you own
- You recently bought a new house and your old house is currently vacant while being sold
- You inherited a home that cannot be occupied until probate has been settled
- You own investment or rental properties that are unoccupied for upwards of 30 days between old and new tenants
Note that DP1 is not the best form for investment or rental properties that are continuously occupied. The coverage is much less than that of a DP-2 or DP-3 policy.
DP-1 insurance policy costs
According to ValuePenguin, the average homeowners insurance policy costs around $1,445 per year, while rental property insurance tends to be a little higher at $1,800 per year. With DP1 being a more basic form of coverage, the odds are that the cost is cheaper than those averages above. Keep in mind that premium rates can vary dramatically from location to location across the country.
