What Is a DP1 Policy and What Does It Cover?

Understanding Dwelling Insurance Policies

Property owners who do not reside in their investment properties, such as landlords of rental homes or owners of vacant houses, require specific insurance coverage distinct from standard homeowner policies. Homeowners insurance is designed for owner-occupied residences, meaning it typically does not cover properties rented out or left unoccupied for extended periods. Dwelling insurance policies, also known as landlord insurance, address these unique risks by providing coverage tailored to non-owner-occupied properties. Understanding dwelling policies is important for property owners to protect their investments. These policies help safeguard against property damage, offer liability protection, and can even cover lost rental income in certain situations.

Understanding a DP1 Policy

A DP1 policy, formally known as Dwelling Fire Form 1, represents the most fundamental and limited form of dwelling insurance available. This policy is primarily characterized by its “named peril” basis, meaning it only provides coverage for damages caused by specific events explicitly listed within the policy document. If a particular peril is not named, any resulting damage will not be covered. Property owners should carefully review the terms.

DP1 policies are commonly utilized for properties that present higher risk or do not qualify for more comprehensive coverage, such as vacant homes, older rental properties, or those undergoing renovation. For instance, a property left vacant for more than 30 days might require a DP1 policy, as standard homeowners insurance typically ceases to cover such properties after a certain period of unoccupancy. The policy’s basic nature makes it the least expensive option among dwelling policies.

A significant characteristic of the DP1 policy is its payout structure, which is typically based on Actual Cash Value (ACV). This means that in the event of a covered loss, the insurance payout will reflect the replacement cost of the damaged property minus depreciation. For example, if a 15-year-old roof is damaged by a covered peril, the ACV payout would only cover the roof’s depreciated value, not the cost to install a brand new roof. This depreciation factor can result in a lower claim settlement, potentially leaving the property owner responsible for a portion of repair or replacement costs.

Perils Covered by DP1

A standard DP1 policy offers a specific and limited set of covered perils, primarily focusing on fire-related incidents. The core perils included are fire, lightning, and internal explosion. These foundational coverages define the basic form of the DP1 policy.

Beyond these primary perils, some DP1 policies may also include coverage for additional events, often referred to as Extended Coverage (EC) perils. These can include windstorm, hail, riot or civil commotion, smoke, damage from aircraft, damage from vehicles, and volcanic eruption. While these may be included in some standard DP1 forms, they are historically considered add-ons that convert the policy into a “Basic Form with Extended Coverage.”

Certain insurers might also offer vandalism and malicious mischief (VMM) as an optional endorsement to a DP1 policy, which would provide coverage for intentional damage to the property. Such additions require an extra premium and are not automatically part of the most basic DP1 form. Property owners must review their specific policy to understand which perils are covered.

Common Exclusions and Limitations

While a DP1 policy provides coverage for its named perils, it also comes with significant exclusions and limitations. Many common types of property damage are typically not covered by a basic DP1 policy unless specifically added by endorsement. These often include theft, vandalism (unless VMM is added), freezing of pipes, falling objects, and the weight of ice, snow, or sleet. Water damage, particularly from sources like burst pipes or accidental discharge, is another frequent exclusion.

A standard DP1 policy generally does not include liability coverage, which protects the owner against lawsuits if someone is injured on the property. This type of protection, which helps cover legal fees and medical expenses, must typically be purchased as a separate endorsement if desired. The policy also excludes losses due to wear and tear, neglect, war, nuclear hazard, and flood, which are standard exclusions across many insurance forms.

The Actual Cash Value (ACV) payout method means the payout for a covered loss will be less than the cost of replacing the damaged item with a new one, as it accounts for depreciation. Property owners should recognize that relying solely on a DP1 policy exposes them to out-of-pocket expenses for damages caused by unnamed perils or due to the depreciation factor in claims.

Distinguishing DP1 from Other Dwelling Policies

Dwelling policies are typically categorized into three main forms: DP1, DP2, and DP3, each offering varying levels of coverage. The DP1 is the most basic, followed by the DP2, and then the DP3 as the most comprehensive option. Understanding these distinctions is important for selecting appropriate coverage for non-owner-occupied properties.

The DP2 policy, known as the Broad Form, expands upon the DP1 by covering a broader list of named perils. While still a “named peril” policy like the DP1, a DP2 typically includes additional coverages such as:
Falling objects
Weight of ice, snow or sleet
Accidental discharge of water or steam
Freezing of pipes
Damage from burglary or vandalism

A significant difference is that DP2 policies generally provide replacement cost coverage for the dwelling, meaning depreciation is not deducted from the payout for covered structural damage.

The DP3 policy, or Special Form, offers the most extensive protection for the dwelling structure. Unlike DP1 and DP2, a DP3 is an “open peril” or “all-risk” policy for the dwelling, meaning it covers all causes of loss unless specifically excluded in the policy. This shifts the burden of proof, as damages are covered unless the insurer can demonstrate an exclusion applies. While DP3 offers broad coverage for the structure, personal property coverage often remains on a “named peril” basis and may be paid out at Actual Cash Value.