What Is a DP2 Policy and What Does It Cover?

A DP2 policy is a type of dwelling fire insurance specifically designed for properties not occupied by the owner. This policy offers a defined set of protections for property owners. It is commonly utilized when a standard homeowners insurance policy, which typically requires owner occupancy, is not suitable.

Core Coverages of a DP2 Policy

A DP2 policy operates on a “named peril” basis, meaning it only provides coverage for losses caused by incidents explicitly listed within the policy document. This contrasts with “open peril” policies that cover all risks unless specifically excluded. The range of named perils in a DP2 policy is broader than more basic dwelling fire policies.

A DP2 policy covers many named perils, including:

• Fire and lightning, windstorm and hail, and explosions
• Damage from riot or civil commotion, aircraft, and vehicles
• Smoke damage, vandalism and malicious mischief, and theft or burglary damage
• Falling objects, the weight of ice, snow, or sleet
• Accidental discharge or overflow of water or steam
• Sudden and accidental tearing apart, cracking, burning, or bulging of a heating or plumbing system
• Freezing of pipes
• Sudden and accidental damage from artificially generated electrical current

Beyond these specific perils, a DP2 policy includes several coverage components. Coverage A, known as Dwelling coverage, protects the physical structure of the home itself, including the foundation, walls, and roof. Coverage B, or Other Structures, extends protection to detached buildings on the property, such as sheds, fences, or unattached garages. These structures are covered against the same named perils as the main dwelling.

Coverage C, Personal Property, is more limited under a DP2 policy compared to a standard homeowners policy. It generally covers the personal property of the insured, such as landlord-owned appliances or maintenance equipment stored on site. This coverage typically does not extend to the personal belongings of tenants. Coverage D, Fair Rental Value, is a component for property owners. This provides reimbursement for lost rental income if the property becomes uninhabitable due to damage from a covered peril.

Understanding Policy Valuation

Understanding how claims are valued is important for policyholders. A DP2 policy typically uses two primary valuation methods: Actual Cash Value (ACV) and Replacement Cost Value (RCV). The method applied depends on the type of property damaged.

Actual Cash Value (ACV) is calculated as the replacement cost of an item minus depreciation. Depreciation accounts for the item’s age and wear and tear. For example, if an older appliance is damaged, the payout reflects its depreciated value rather than the cost of a new one. Most personal property covered under a DP2 policy, such as the landlord’s appliances, is valued at ACV.

In contrast, Replacement Cost Value (RCV) covers the cost to repair or replace damaged property with new materials of similar kind and quality, without any deduction for depreciation. This means the policy aims to restore the property to its condition before the loss, using new items. While some basic dwelling fire policies may value the dwelling at ACV, a standard DP2 policy often covers the dwelling and other structures on an RCV basis. This helps cover the full cost of rebuilding or repairing structural damage without the owner absorbing depreciation costs.

Scenarios Where a DP2 Policy Applies

A DP2 policy is a suitable insurance choice for specific property ownership scenarios where a standard homeowners policy is not appropriate. It serves as a middle-ground option, offering more protection than a basic DP1 policy but less comprehensive coverage than an HO3 homeowner’s policy.

Landlords commonly choose a DP2 policy for their rental properties. This type of policy covers the structure of the building and any of the landlord’s personal property on-site. It does not cover the personal belongings of the tenants, who are responsible for securing their own renters insurance.

Properties that are vacant for extended periods can also benefit from a DP2 policy. Standard homeowner policies often include vacancy clauses that may limit or negate coverage if a property is unoccupied for a specified duration, typically 30 to 60 days. A DP2 policy can provide necessary protection during these times, though it is important to review specific policy terms regarding vacancy.

Properties undergoing renovations, especially if they are unoccupied during the process, may also find a DP2 policy applicable. The policy provides coverage for the structure during the renovation period when the property might be more vulnerable or not meet the occupancy requirements of a standard homeowners policy. It offers broader named peril coverage than a basic DP1 policy, making it appropriate for these situations.