What Is a DP-1 Insurance Policy?

A DP-1 insurance policy, often called Dwelling Fire Form 1, is a basic, named-peril property insurance. It is designed primarily for properties not occupied by their owner. This policy provides fundamental coverage against a limited set of risks, making it a cost-effective option for specific property types where more comprehensive insurance may not be suitable.

Understanding DP-1 Insurance

The “DP” in DP-1 stands for Dwelling Property, and “1” signifies it is the most basic dwelling policy. This policy operates on a “named peril” basis, meaning it only covers losses caused by specific events explicitly listed. If a cause of damage is not named, such as water or vandalism, it is not covered unless specifically added.

A defining characteristic of a DP-1 policy is its use of “Actual Cash Value” (ACV) for claim payouts. ACV accounts for depreciation, meaning the payout reflects the replacement cost minus accumulated depreciation. This can result in a lower payout than the cost to replace or repair with new materials, leaving the owner responsible for the difference. This policy is generally intended for properties not inhabited by the owner, such as rental homes, properties awaiting sale, or those undergoing renovation.

Standard Coverages

A standard DP-1 policy provides coverage for a limited number of perils, primarily focusing on fire-related incidents. These typically include damage from fire, lightning, and internal explosions.

Property owners can expand coverage through an Extended Coverage (EC) Endorsement. This endorsement adds protection against several other perils beyond the basic fire and explosion coverage. Common additions include windstorm, hail, riot or civil commotion, damage from aircraft, damage from vehicles, and volcanic eruption. These additional perils are not part of the base DP-1 policy and must be specifically added.

Common Exclusions

DP-1 policies are restrictive, meaning many common causes of property damage are typically not covered. Standard exclusions often include theft, vandalism, and freezing of pipes. Water damage, such as from burst pipes or appliance overflows, is also generally excluded unless it results from a named peril like an explosion.

Further exclusions involve damage from falling objects, the weight of ice or snow, and structural collapse. Liability coverage, which protects against claims for bodily injury or property damage to others, is not a standard inclusion and usually requires an additional endorsement. These exclusions highlight that the policy offers minimal protection compared to more comprehensive options.

Ideal Candidates for DP-1 Insurance

DP-1 insurance is suitable for specific property types and situations where a basic, cost-effective insurance solution is sufficient. Landlords who own rental properties, especially older homes or those with lower values, often find this policy appropriate.

Owners of vacant homes, such as those awaiting sale or between tenants, are also common candidates. Standard homeowners insurance policies typically do not cover properties that have been vacant for an extended period, often 30 to 60 days, making DP-1 a viable alternative. Additionally, properties undergoing extensive renovation can benefit from the limited protection offered by a DP-1 policy.

Comparing DP-1 with Other Dwelling Policies

The DP-1 policy is the most basic option compared to other dwelling policies like DP-2 (Broad Form) and DP-3 (Special Form). A primary distinction lies in their coverage approach: DP-1 and DP-2 are both “named peril” policies, covering only explicitly listed risks. DP-2 covers a broader range of named perils than DP-1, typically including about 18 different risks compared to DP-1’s nine.

In contrast, DP-3 is an “open peril” or “all-risk” policy, providing coverage for all risks of direct physical loss unless specifically excluded. Another significant difference is the claim payout method: DP-1 policies pay out on an Actual Cash Value (ACV) basis, factoring in depreciation. DP-2 and DP-3 policies typically pay out on a Replacement Cost Value (RCV) basis, covering the cost to repair or replace damaged property without deducting for depreciation.