Both DP1 and DP3 policies can be used to cover homes used as primary residences or as investment properties. The key differences between these policies are the types of coverage offered, the number of perils covered, and how they settle claims.
DP1 only protects against nine perils and usually covers the whole house for its actual cash value, meaning all claims payouts deduct depreciation.
For comparison, DP3 is an open perils policy, which means the home is covered for all sources of loss except those the policy names as exclusions. It primarily covers your dwelling for its replacement cost, or what it would cost to rebuild your home from the ground up with similar materials after a total loss.
However, our DP3 policies include the Roof Surfacing Payment Schedule endorsement, which covers the roof for its actual cash value only when it’s damaged by wind or hail. For all other covered sources of damage, the roof and the rest of the home’s structure are insured for their replacement cost. This adjustment usually means we can insure homes with older roofs and offer a sizable premium discount.
Take a look at the difference between DP1 and DP3 to get a better understanding of what each policy covers.
|Coverage A (Dwelling)||Replacement cost||Actual cash value|
|Perils Covered||All perils except those the policy lists as exclusions||9 named perils|
|Fair Rental Value||Included||No coverage|
|Freezing Pipes||Included||No coverage|
A DP1, also known as a Dwelling Fire Form 1 policy, is an insurance policy that essentially offers building-only protection. It covers damage caused by the perils named in the policy, and those perils are usually limited to these nine:
In other words, if your property experienced damage from an incident not listed here, it wouldn’t be covered. That can leave your property vulnerable to some pretty common instances. For example, DP1 doesn’t typically cover vandalism. Moreover, DP1 doesn’t cover your personal property or liability, but you can add those coverage for an extra cost.
Insurers may often use a calculation like this to figure that out:
R × (E - C) / E = ACV
In the equation, R is the replacement cost of the item; E is its expected life span; C is the item’s current life; and ACV is actual cash value, or how much you may receive in a claim.
Say, for example, your roof is damaged by a fire. The roof is 10 years old, and the repairs cost $8,000. A replacement cost policy might pay out that full $8,000, but an actual cash value policy takes into account the useful years left in your roof and its depreciation. So if your roof has an expected life of 20 years, your actual cash value payout comes to:
$8,000 x (20-10) / 20 = $4,000
Another important thing to note about a DP1 policy is that it doesn’t usually cover the loss of rental income. That’s important to know if you’re insuring an investment property because it means you aren’t covered for any rent you may have collected when roof repairs make it impossible for tenants to live there.
Generally speaking, the DP1 is considered a bare-bones property policy for investors and landlords. It’s the least expensive type of dwelling property insurance you can get.
DP3, also known as a Dwelling Fire Form 3 policy, offers more robust coverage than a DP1. It’s an open perils policy, which means it covers far more types of loss than DP1. Rather than listing a few covered perils, the DP3 covers all perils except those listed in the policy as exclusions. That means your property gets much, much more protection.
Some common DP3 exclusions are loss or damage from:
The DP3 policy also differs from DP1 in how it pays for losses. While DP1 factors depreciation into claims payouts, DP3 typically pays based on the home’s replacement value. As noted earlier, our DP3 policies do factor in the roof’s depreciation for wind or hail claims only. This adjustment means even homes with older roofs are eligible for coverage and helps keep costs low.
DP3 is considered the most robust of the three dwelling property insurance policies because it can also cover other structures, personal property, loss of use or fair rental value (depending on how you use the property), liability, and medical payments.
Fair rental value is a particularly important coverage for investment properties. It can cover lost rental income when the property is uninhabitable after a covered loss.
Typically, a DP1 policy is used for vacant properties (and properties that will be vacant for at least 30 days). These might be properties pending a sale or assumed in probate that don’t have the need for robust coverage. Investors who plan on rehabbing a property to flip might also get a DP1 policy.
However, if the property owner needs expanded or more customizable coverage, DP3 is usually the better policy. You might consider a DP3 policy if you have:
A DP1 policy usually isn’t the best option for a property with tenants.
Let our team help you find the dwelling property insurance that fits your needs and protects your home. We crunch thousands of data points about your property to customize your coverage to fit your budget and your risks. To get a quote, apply online or give us a call.
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