What Is a DP-1 Insurance Policy and How Does It Work?

A DP-1 insurance policy, formally known as Dwelling Policy Form 1, offers foundational property insurance. It is a named-peril policy, meaning it covers damages only from specific events listed in the policy. This policy is primarily for properties not occupied by the owner, distinguishing it from standard homeowners’ insurance. Its limited scope makes it a more basic option compared to other dwelling policy forms.

Covered Perils

A DP-1 policy functions on a “named peril” basis, meaning coverage extends only to specific risks or events itemized in the policy. If a cause of damage is not listed, the policy does not cover the loss. Core perils include fire, lightning, and internal explosions.

To broaden protection, policyholders can add extended coverage (EC) perils for an additional premium. These commonly encompass windstorms, hail, external explosions, riot or civil commotion, damage from aircraft, damage from vehicles, and smoke. Vandalism and malicious mischief are often optional endorsements requiring extra cost, rather than standard inclusions.

Policy Characteristics and Exclusions

DP-1 policies are structured on a named peril basis, which means that for a claim to be valid, the property owner must demonstrate that the damage resulted from a peril specifically listed in the policy. Such policies typically settle claims based on Actual Cash Value (ACV), which accounts for depreciation of the damaged property.

Actual Cash Value is calculated as the replacement cost of the damaged item minus its depreciation. This differs from Replacement Cost Value (RCV) policies, which pay the cost to repair or replace property without deducting for depreciation.

While a DP-1 policy covers specific named perils, it also contains general exclusions for certain events or types of damage. Common exclusions typically found in these policies include flood, earthquake, war, nuclear hazard, power failure, and intentional loss. Damage caused by neglect or issues related to ordinance or law are also generally excluded.

Typical Use Cases

A DP-1 policy is frequently chosen for properties that are not the primary residence of the owner. This includes rental properties, vacant homes, or seasonal and vacation residences that are not occupied by the owner for substantial periods. For landlords, a DP-1 can serve as a basic form of landlord insurance, covering damages to the property structure from designated risks.

This policy can be a suitable choice for properties that are between tenants, inherited homes awaiting sale or probate, or older properties where a more comprehensive and expensive policy might not be desired. Its basic coverage and lower cost make it an option for owners seeking minimal protection against specific perils. It is distinct from standard homeowners insurance policies, such as an HO-3, which are tailored for owner-occupied primary residences and offer broader coverage.