What Is A DP1 Policy & How Does It Work In May 2024?

It might feel impossible to sort through all of the information available, but it doesn’t have to be.

When you narrow it down, there are only a few different types of policies you can use to insure your rental properties and your vacation homes.

In this post, we’ll take a closer look at DP1 policies, so you can understand if they’re right for your properties.

What Is A DP1 Policy?

A DP1 insurance policy is a type of insurance policy that falls into the category of a Dwelling Fire Policy. These policies are essential if you live in an area prone to things like wildfires or brush fires.

And according to our friends over at Einhorn Insurance, California wild fires have caused many insurance companies to reassess which homes and geographic areas they will continue to insure have caused many insurance companies to reassess which homes and geographic areas they will continue to insure.

While there are several different types of dwelling fire policies available to property owners, DP1s are one of the most common and most popular among homeowners who need a basic insurance policy.

DP1 policies are named peril policies. A peril policy covers events explicitly named in your policy. Anything that’s outside of those named perils will not be covered. 

Named perils typically include:

In the past, DP1 policies only covered fires and lighting storms. DP1 extended coverage insured other perils. 

Now, they’re typically all included in the base policy. So, while these are common perils, not every policy covers every peril, making it important to look into the details before you make your decision. 

Perils typically excluded from DP1 policies include floods and water damage, frozen pipes, roof damage due to sleet or snow, and falling tree damage.

When Do Homeowners Need DP1 Policies?

DP1 policies are appropriate for property owners in several different circumstances.

Can A DP1 Policy Cover My Vacation Home?

Some of these common risks include damages caused by vandals, fire hazards, and pipe leaks that lead to extensive water damage. 

Since DP1 policies often cover vacant properties, they can be a great fit for vacation homes, short term rental properties, and seasonal homes. 

Other instances where a vacant home insurance policy might be needed include: 

HO3 vs. DP1 Coverage

Both HO3 policies and DP1 policies insure residential properties, but they apply to different situations.

An HO3 policy is a basic homeowner’s insurance policy, whereas a DP1 policy form covers properties that are not occupied by the homeowner.

Since an owner-occupied home comes with a different set of risks than a rented or vacant property, the policy covers different things.

For example, an HO3 policy will almost always include coverage for the personal property inside your home, whereas a policy written for a vacant property will not.

Owner-occupied homes are also considered less risky than a rental property or a vacant home.

Homeowners are more likely to notice and report a problem like a leaking pipe than a tenant. Because of this, HO3 policies usually have lower premiums than a DP1 policy. 

DP3 vs. DP1 Coverage

DP1 policies and DP3 policies are both dwelling fire policies, but there are a few notable differences between DP3 and DP1 coverage. 

Named peril policy: The most prominent difference between a DP1 and a DP3 policy is that a DP1 is a named peril policy, whereas a DP3 is an open peril policy. A DP1 policy explicitly lists which perils are covered while a DP3 will only list a handful of exclusions.

Actual cash value: Another difference between these two policies is compensation for your losses. A DP1 policy will compensate you for the actual cash value (ACV) of your losses. The policy considers the depreciation of your property— the older it is, the lower its value. 

What does that mean? Let’s say a windstorm destroys a deck built 20 years ago. 

Because the deck was 20 years old, its construction materials were older and not worth as much as new materials.

So, while it might cost you $8,000 to rebuild that deck, the insurance policy will only cover you for the $3,000 for the current deck’s worth.

You’re left to cover the $5,000 difference out of pocket.

Thus, DP1 policies tend to be less expensive than DP3 policies, making them an excellent choice for property owners looking for low-cost insurance policies. 

Of course, you’ll want to keep in mind that these policies could end up costing you more in the long run if an unnamed peril damages your property. 

There is also a chance that the replacement cost is significantly higher than the actual cash value.

Taking Action

A DP1 policy is a basic form of insurance for rental properties and vacant homes.

As a named peril policy, it covers the actual cash value of damages resulting from a named peril.

While these policies come with lower premiums than other similar options, it’s important to fully consider the needs of your property before you make a decision.

If you want to update your DP1 homeowners insurance, we’ve done the hard work for you—check out the top three companies or get your free quote for homeowners insurance today.