What Is A DP1 Policy & How Does It Work?

Finding the right balance of insurance policies for your dwelling can be overwhelming. And having DP1 coverage is essential when you begin to factor in rental properties and vacation homes.

Usually those types of homes don’t quite qualify for basic homeowner’s policies.

And the truth is:

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 used by rental property owners 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.

What Does A DP1 Policy Cover?

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:

• Fires and smoke damage
• Lightning storm damage
• Damages from riots and vandalism
• Windstorms
• Hailstorms

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.

What Does A DP1 Policy Not Cover?

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.

Landlord: If you’re a landlord, a DP1 policy can insure your rental properties. As a basic form of insurance, it will cover damages to your property that result from named perils, but it will not provide loss of use coverage.  It’s typically the type of landlord insurance with the lowest premiums, so it can be an attractive option if you’re looking to keep costs low. Many insurance companies also offer discounts to property owners who have home security systems or sprinkler systems, making this an even more affordable option if you qualify. 

Vacant property: DP1 policies insure vacant properties. These policies cover your house and any included structures on your property for their cash value. If your property is to be unoccupied for 30 days or more, a DP1 policy can give you the coverage you need.

Can A DP1 Policy Cover My Vacation Home?

In many cases, a DP1 can policy can cover your vacation home. A vacation home is considered a vacant property, which is riskier to insure than a property occupied full-time.  The additional risk factor comes from the simple fact that there is one there to notice problems as they arise.

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:

• You’re trying to sell your house and have already moved out of it
• Your relative passed away, and the house you’re left to care for is currently empty
• You currently don’t have any tenants in your investment property and anticipate it being over a month until a new tenant moves in

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. 

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.

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.