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DIFFERENCES BETWEEN DP1 & DP3
LANDLORD POLICIES
A Dwelling Fire policy is insurance for rental properties.
There are 3 types of Dwelling Fire policies but two are most commonly used: Dwelling Fire 1 (DP1) and Dwelling Fire 3 (DP3). Below we list the most common differences.
Dwelling Fire 1 Insurance Policy
The DP1 insurance policy is also called Dwelling Fire Basic. It has the most basic coverages available primarily for rental properties although it can also be used for very poorly maintained homeowner occupied properties.
Named Perils Policy
A DP1 policy only covers the following named perils. Perils are defined as events or circumstances that cause or may potentially cause a loss.
Common Named Perils:
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Fire and lightening
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Internal/external explosion
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Wind/hail
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Riot or civil commotion
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Smoke
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Aircraft
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Vehicles
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Volcanic explosion
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Vandalism & Malicious Mischief (VMM)
Actual Cash Value
When it comes to a loss, DP1 policies pay out ACV, Actual Cash Value. If you have a loss at the property, depreciation plays a big factor as to how much the insurance company will pay you for your loss. Insurance companies consider how old the property is when determining how much they will indemnify you for your loss.
Cost of DP1 policies
The cost of DP1 policies are the lowest costing landlord policy available on the market today because the coverage limits are so low. A cost-to-benefit analysis should be done by each property owner based on each home individually. Some homes are in such poor conditions that DP1 policies make sense. Other homes are in good or better condition and another policy type should be considered.
Dwelling Fire 3 Insurance Policy
The DP3 insurance policy is also called Dwelling Fire Special and is the best insurance policy available for rental properties. It provides just as much coverage as a standard HO3 policy designed for homeowner occupied dwellings.
All Risk vs. Named Perils
The DP3 insurance policy is an open perils policy compared to a DP1 policy which is a named perils policy. An open perils policy covers all possible causes of loss although some exclusions do apply:
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Earth movement (incl earthquake)
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Water damage
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Power failure
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Neglect
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Normal wear and tear
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War
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Nuclear hazard
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Governmental action
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Mold
Some of these coverages may be added back to the DP3 policy as policy endorsements.
Replacement Cost vs. Actual Cash Value
Unlike a DP1 policy, DP3 policies cover rental properties at the cost to replace the property if there were ever a total loss. Replacement Cost does not account for the depreciation of the property but provides enough coverage to repair or replace the home during a loss.
Loss of Rents
Loss of Rents is a lot like the Loss of Use coverage on your standard home insurance policy. Loss of rents provides you with additional rental income while your home is being repaired or rebuilt due to a covered cause of loss or open peril. This coverage is vital because should your tenant need to move out while repairs are happening, it ensures that you are still receiving money to cover the mortgage payments and other bills.