What Is a DP-3 Policy?
DP-3 policy is a type of dwelling fire insurance for non-owner occupied, residential homes. DP-3, like other dwelling fire insurance policies, covers the home’s physical structure but not its contents.
When Do Homeowners Need DP-3 Policies?
A homeowner who rents out their property and does not live in it out faces different risks than other homeowners. The insurance industry created a set of policies called dwelling fire insurance to address these risks. DP-3 is one of these policies.
Dwelling fire insurance, including the DP-3 policy, typically covers the physical structure of your home. You may need additional insurance for:
- Damage to other structures, like a garage or shed.
- Damage to your personal property, like appliances in the home.
- Your personal liability. (Some DP-3 policies include personal liability coverage. Ask your agent to be sure.)
DP-3 policies are the most popular kind of dwelling fire insurance, perhaps because they are written on an open-perils basis. This means damage is covered unless it is caused by an event listed in the policy. Some of the most commonly excluded perils are:
- Ordinance or law.
- Earth movement.
- Water damage.
- Power failure.
- Nuclear hazard.
- Intentional loss.
- Governmental action.
Another reason DP-3 policies are popular is because they often include loss of rent coverage. This coverage can compensate you for lost rental income if damage to your rental property makes it unlivable. For example, say a windstorm tears the roof off of a home you rent, and your tenants have to find temporary housing. That lost income may be covered by a DP-3 policy while repairs are made.
DP-3 policies are frequently written on a replacement-value basis. This means your insurance company can pay the full cost of replacing your property up to your policy limits rather than subtracting for depreciation.
How Do I Know If I Need a DP-3 Policy?
First, ask yourself three questions:
- Do I own the home? In this instance, a home may be a single-family dwelling, but it can also have up to four units.
- Do I rent that home or a portion of that home to other people? Renting to tenants usually increases your risk for property damage.
- Do I live in a home different from the one I rent out? A standard home insurance policy, like HO-3, can usually cover a landlord who lives in their rental property.
Answering yes to all three questions is a good indication that dwelling fire insurance is the right fit for your situation. After that, you may also want to ask yourself:
- What risks does this property face? DP-3 is the only dwelling fire policy written on an open-perils basis. It provides broader coverage than DP-1 or DP-2.
- Can I afford to repair damage to my rental property? Getting the full replacement cost value of your property can help you recover quickly.
- How important is my rental income to me? If rent is a major portion of your income, then loss of rent coverage is essential to your recovery, too.
Essentially, you want to decide the amount of risk your willing to take on and how much money you’re willing to spend on premium.
Can a DP-3 Policy Cover My Vacation Home?
While dwelling fire insurance is for non-owner occupied homes, some policies deny coverage for homes that sit vacant for a long time, like:
- Seasonal homes.
- Vacation properties.
- Short-term rentals, like properties listed on Airbnb or Vrbo.
A DP-3 policy may limit your coverage if your home stands vacant for as little as 30 days. Tell your agent what you use your home for so they can help you find the appropriate home insurance.