What Is DP3 Insurance and What Does It Cover?

Dwelling insurance policies provide financial protection for property owners against various risks that could damage their investment. These policies are distinct from standard homeowners insurance, which is designed for properties where the owner resides. Among the different types of dwelling policies, DP3 insurance stands out as a comprehensive option specifically tailored for properties not occupied by the owner, such as rental homes.

Understanding DP3 Insurance

DP3 insurance, also known as Dwelling Fire Form 3, is a robust insurance policy for residential rental properties. It primarily distinguishes itself through its “open perils” coverage for the dwelling and other structures. “Open perils” means that the policy covers damage from all causes of loss unless a specific cause is explicitly excluded in the policy document.

For personal property owned by the landlord and kept on the premises, DP3 policies typically provide “named perils” coverage. This means coverage is only extended to losses caused by specific events or risks itemized within the policy. Common named perils usually include fire, lightning, windstorm, and vandalism. DP3 policies generally offer replacement cost coverage for the dwelling and other structures, meaning claims are paid based on the cost to rebuild or repair without deducting for depreciation. Personal property, however, is often covered at actual cash value, which accounts for depreciation.

Specific Coverages

Dwelling Coverage, known as Coverage A, protects the physical structure of the rental home itself. This includes the foundation, walls, roof, and other attached fixtures, protecting the primary investment.

Other Structures Coverage, or Coverage B, extends protection to detached buildings on the property. This encompasses structures like sheds, detached garages, fences, or guesthouses. These auxiliary structures are also covered on an open perils basis, similar to the main dwelling.

Personal Property Coverage, designated as Coverage C, covers the landlord’s personal belongings located within the rental property. This coverage is typically limited and applies to items like appliances or furnishings supplied by the landlord for tenant use. As a named perils coverage, it protects against events such as fire, lightning, windstorm, hail, explosion, riot, aircraft or vehicle damage, smoke, vandalism, and theft.

Fair Rental Value, also referred to as Loss of Use Coverage, is Coverage D and is important for landlords. If a covered peril renders the rental property uninhabitable, this coverage compensates the landlord for lost rental income. This financial support helps maintain cash flow, covering expenses like mortgage payments and property taxes, while the property undergoes repairs.

Key Exclusions

While DP3 policies offer broad “open perils” coverage for the dwelling, they do contain specific exclusions, meaning certain events or types of damage are not covered. Common exclusions typically include damage caused by floods and earthquakes, which usually require separate, specialized policies for coverage. Another frequent exclusion is sewer backup or sump pump overflow.

Policies also generally exclude losses resulting from ordinance or law, which pertains to increased costs of repair or reconstruction due to updated building codes. Other standard exclusions encompass neglect, intentional loss caused by the policyholder, nuclear hazard, and acts of war. Damage resulting from wear and tear, deterioration, or infestation by insects and rodents are also typically not covered, as these are considered maintenance issues rather than sudden, accidental perils.

Ideal Use Cases for DP3

DP3 insurance is specifically designed for property owners who do not reside in the insured dwelling, making it an ideal choice for various non-owner-occupied scenarios. Its primary application is for landlords renting out residential properties, including single-family homes, duplexes, or multi-family units. This policy protects the physical structure and the landlord’s interests when tenants occupy the premises.

It is also suitable for seasonal properties, vacation homes, and short-term rentals listed on platforms. For properties that may be temporarily vacant, such as during a transition between tenants or while undergoing renovation, a DP3 policy can provide coverage. Additionally, properties that are on the market for sale but are currently unoccupied by the owner can benefit from DP3 coverage until a new owner takes possession.

Comparing DP3 with Other Dwelling Policies

Understanding DP3 insurance involves recognizing its position within the broader landscape of dwelling policies, specifically in comparison to DP1 and DP2 forms. DP1, the most basic dwelling policy, operates on a “named perils” basis for both the dwelling and personal property. It typically covers a limited number of perils, such as fire and lightning, and often settles claims based on actual cash value, which accounts for depreciation. This makes DP1 a less comprehensive and usually less expensive option.

DP2, known as the broad form, also provides “named perils” coverage for both the dwelling and personal property but covers a more extensive list of perils than DP1. While still a named perils policy, it often includes protection against events like falling objects, freezing pipes, and accidental discharge of water. Similar to DP3, DP2 policies typically offer replacement cost coverage for the dwelling.

DP3 stands apart by offering “open perils” coverage for the dwelling and other structures, providing protection against all causes of loss unless specifically excluded. This differs from the “named perils” approach of DP1 and DP2. Furthermore, DP3 policies consistently provide replacement cost coverage for the dwelling, ensuring that repairs or rebuilding costs do not factor in depreciation. This combination of broad peril coverage and replacement cost settlement makes the DP3 the most comprehensive option among dwelling policies for non-owner-occupied properties.