If you own an investment property, you already know how important it is to have it adequately protected by an insurance policy. 

But do you know what kind of policy is right for your property?

Since there are so many different policies, many property owners have a hard time deciding which one is right for them 

dp3

This post will help you understand what a DP3 policy form is and determine if it’s right for you.

In This Article



What Is A DP3 Policy?

A DP3 policy is a type of insurance that falls under the Dwelling Fire Policy category.

Several different types of dwelling fire policies are available, but DP3s are the most popular. These policies apply to residential rental properties in which the property owner does not reside. 

DP3 policies are a type of Open Peril Policy. That designation means your policy will contain a list of perils excluded from the coverage.

The policy covers damage from something other than items on the excluded list. 

Some commonly excluded perils are:

  • Floods
  • Earthquakes
  • Mold damage
  • Intentional damage (like arson)
  • Acts of war

What Does A DP3 Policy Cover?

Below is a list of the primary things a DP3 policy will cover: 

  • Structure damage: A DP3 policy covers damage to the structure of your home as well as any other buildings around your property, like garages, sheds, and pool houses. If an excluded peril didn’t cause the damage, the cost of rebuilding or replacing the structure is covered. 
  • Personal liability: If an injury to a covered person occurs on your property, you may be held liable for their medical expenses. Your DP3 policy will cover those costs, as well as any legal fees you may encounter if the injured party sues you. Many DP3 policies cover this outright, but some don’t, so always ask before deciding to purchase. 
  • Loss of use: If your property is damaged and becomes uninhabitable, you may lose the income you would typically earn from tenants. However, with loss of use coverage, your policy will compensate you for the lost rent. 

DP3 policies do not typically include coverage for your personal property, but most insurance companies offer optional riders that you can add on to include this type of coverage.

Adding these riders would mean that your property, like major appliances, would be covered. 

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When Do Homeowners Need DP3 Policies?

If you’re a homeowner renting out a property that you don’t also live in, you might need a DP3 policy.

Regular homeowner’s policies don’t cover properties in which you don’t reside. 

This type of coverage is particularly valuable if you’re a landlord who considers the rent you charge tenants a primary source of income.

Since the loss of use clause covers any lost rent due to damages, you’ll have the peace of mind that you won’t lose your income. 

Can A DP3 Policy Cover My Vacation Home?

Most DP3 policies don’t cover homes that are sitting vacant for long periods, such as vacation homes.

Meaning DP3 policies don’t insure seasonal residences and properties used for short-term rentals. 

From an insurance standpoint, these properties are riskier than rentals or primary residences because they’re frequently unoccupied.

When there’s no one at a property, the likelihood of damage resulting from vandals, water, and fire increases, so your insurance company will likely want to cover it under a separate Vacant Property Policy.

In some cases, there’s a chance your current homeowner’s insurance for your primary residence can cover a vacation property on the same policy. 

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HO3 vs. DP3 Coverage

HO3 and DP3 policies are both insurance policies for residential buildings, but there are some notable differences between the two. 

HO3 policies are a basic type of homeowner’s insurance policy.

This policy was made for people who own a residential property and occupy the entire building or one of the units full-time. 

dp3 policy

If an HO3 policy covers a multi-family residence, it’s usually for a building with between two and four units.

These policies cover the structure, your personal liability, and your personal possessions.

While DP3 policies are very similar to HO3s, they provide coverage for homeowners not living at the residence.

These policies typically cover two or three-family properties. If the property houses more the three units, you would likely need a commercial insurance policy.

THE SIMPLY INSURANCE WAY

Home Insurance made easy.

Agents not required.

Get quotes and sign up online without talking to an agent. But, we are here if you need us.

Unbiased, expert advice.

Get unbiased insurance education from licensed experts and also avoid dodgy sales calls.

Coverage in minutes.

You can get home insurance coverage within minutes of getting your quotes and applying.

DP3 vs. DP1 Policies

DP3 policies and DP1 policies are both dwelling fire policies, but there are some key differences you need to understand before you make a decision. 

Replacement Cost vs. Actual Cash Value

DP3 policies cover your losses at a replacement cost, meaning the policy covers whatever amount of money is necessary to replace your damaged property.

DP1 policies, on the other hand, consider depreciation and compensate you with the actual cash value (ACV) of the property that was lost.

The compensation difference between replacement cost and ACV can be substantial. 

Open Peril Policy vs. Named Peril Policy

While DP3 policies are open peril policies, DP1s only cover damages from named perils.

The named perils vary between policies, but they typically include fire, storm damage from lighting, windstorms, hailstorms, explosions, and vandalism. 

Because DP1 policies provide less coverage, the premiums are usually lower than those of a DP3 policy.

However, it’s important to consider your needs before selecting the cheapest policy available. 

A DP3 is a more comprehensive policy that covers a wider variety of damages and better compensates homeowners for their losses.

Taking Action

A DP3 insurance policy is for investment properties with two to three units in which the homeowner does not reside.

It’s an open peril policy, meaning it covers a comprehensive list of possible damages and the full replacement value of any damaged property. 

Now that you know more about this type of policy, you can decide whether or not it’s right for your property.

It’s always crucial to select a policy that makes sense for you and your unique property.

If you want to update your DP3 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.


Sa El

About the author

Sa El is the Co-Founder of Simply Insurance and a licensed Insurance Agent with over 13 years of experience in the industry.  He specializes in Life & Health Insurance and is certified in Long Term Care Insurance in the state of Georgia. a licensed real estate agent in the state of Georgia (License #382602), an entrepreneur, insurance educator, and freelance writer.

Sa El


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