Are you a landlord or planning to rent your property to someone else? If you don’t live on your property, you could face certain risks if an accident or loss occurs. That’s where dwelling fire insurance comes in. A dwelling fire (DP3) insurance policy is a specific home insurance policy for rented homes. A DP3 is essential for protecting your home’s structure from the unknown. If you only have an HO-3 policy, you don’t have the right coverage. This DP3 policy guide will clear up confusion and get you on your way to proper home insurance coverage

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What Is a DP3 Policy?

A typical homeowners insurance policy won’t work the same way on your rental property. As a landlord, you face significant risks that the typical homeowner will never face. There is a lot to take into account when renting out a home. From personal liability and vandalism to fire and theft, these risks put a lot of weight on a homeowner. You’re trusting another person to live on your property. Luckily, there is the dwelling fire policy, or DP3 form, to protect your property. 

What Does a Dwelling Fire Policy Cover?

Do you own a multi-family property but don’t reside on the property? A DP3 policy will be your best match. Many people like you choose a DP3 policy because it is an open-peril policy. “Open peril” means your insurance company includes all covered perils. Think of this as coverage on pretty much anything bad that happens to your property. Open perils are much different than named perils. A named-perils policy only covers your property’s losses from specific perils or hazardous events listed on your policy.

Loss of use rental coverage may also be included. Loss of use coverage exists to cover additional living expenses. You need loss of use when your home becomes unlivable. If a windstorm comes and rips the roof off of your property, it will need to be repaired or rebuilt. Your tenants will need to find another place to live. For reference, your home’s rebuilding or repair is known as dwelling coverage (or Coverage A). This covered peril would result in a loss of rents. As a landlord with loss of rents coverage, you could be eligible for reimbursement of lost rental income of the fair rental value, up to your policy’s limits. For reference, loss of use/rents will be under Coverage D in your homeowners policy

Finally, personal liability is included in some DP3 policies. Personal liability coverage is a type of coverage that protects you legally. This type of coverage is used for events like accidents resulting in bodily injury or property damage. Personal liability also covers the cost of medical bills and legal defense fees up to the policy’s limit. 

What’s Not Covered Under a DP3 Policy?

A DP3 policy does not include the contents of the home, like furniture. Do you need coverage on the contents of your rental home? You will have to purchase additional coverage or an endorsement to your policy.

You may be required to buy a different policy if you have buildings that you rent to three or more families because they may be considered investment properties. In this case, a commercial policy would be the correct policy for you, instead of a DP3. There are some instances where your insurance company will insure a three- or four-family building with a DP3. Check with your insurance company to confirm which policy is right for you. 

Some perils and events typically excluded on a DP3 policy:

  • Earth movement (such as earthquakes)
  • Water damage
  • Ordinance or law
  • Power failure
  • Negligence
  • Intentional loss
  • War
  • Nuclear hazard
  • Governmental actions
  • Mold or rot
  • Seasonal vacation properties, or short-term rentals (coverage may vary by insurance company)

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Optional Coverages on Dwelling Fire Insurance

The DP3 policy mainly covers your property’s structure (known as Coverage B). You may have other structures, like a garage or a shed. You can purchase an add-on or endorsement for your DP3 policy to include these structures. An endorsement may also be added for personal property inside your rental. Personal property includes appliances like ranges or dishwashers. You can find personal property details under Coverage C in your insurance policy. Also, check with your agent to confirm if your policy includes personal liability coverage. Policies can vary from insurer to insurer. You may purchase an endorsement if personal liability is not included. 

What’s the Difference Between a DP3 Policy and an HO-3 Policy?

An HO-3 is the most popular type of homeowners insurance policy that provides comprehensive coverage. It’s a bad idea to have an HO-3 policy if you don’t live on your property. If something terrible happens, you would be at risk of not being covered for losses. When you rent out your home, your insurer considers there to be increased liability on it. Rental property premiums can cost 20 to 30 percent more. Yes, even though it comes with less coverage, you’re stuck paying more. 

When You Need a DP3 Policy

If you are a landlord or intend to rent your dwelling without living there, the DP3 policy will be your best option. Let’s say your tenant has a fire in the kitchen of their unit. The kitchen walls and range are destroyed. The walls will be repaired or rebuilt under loss of use coverage in your policy. The range and dishwasher are covered under personal property coverage with additional coverage on these items. The tenant’s personal property, including the kitchen table, would only be covered by their renters insurance. You are not responsible for the replacement cost of your renter‘s personal property. If you only had an HO-3 policy, nothing would be covered in this scenario. It’s a scary thought!

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Frequently Asked Questions About DP3 Policies

What's the difference between a DP1 and a DP3 policy?

They are both types of dwelling fire policies. The only difference is that a DP1 policy provides the minimum coverage amount for a vacant property at actual cash value. A DP3 policy is known as "landlord insurance," when the landlord rents out a property without living there. If something happens, a DP3 includes replacement cost coverage for repairs or replacing property. 

What does actual cash value mean?

Actual cash value (ACV) is the replacement cost of an item minus the depreciated value at the time of loss. This means that if your personal item needs to be replaced, you will get less money than you paid for it. This is because items lose value over time. Replacement cost coverage is better. With replacement cost coverage, the item would be replaced at its pre-loss condition. There's no depreciation involved. 

Does a DP3 policy cover theft?

Personal property belonging to the landlord is not typically covered under a DP3 policy. Property owners should purchase additional theft coverage for their own personal items. For personal property, a landlord should purchase additional insurance to include expensive items. Expensive items might consist of a dishwasher or a refrigerator. This way, if these items are stolen, they can be replaced. Tenants looking to cover risks like theft should purchase their own renters insurance policy.

Should I purchase a DP3 policy for my home in Florida?

If you don’t live in your property and it’s a rental, a DP3 is ideal for your home in Florida. Purchasing a DP3 provides peace of mind in case of accidental damage. If something happens to your tenant, your policy’s personal liability coverage will pay for medical payments and any legal fees.

Conclusion: DP3 Policy Guide to Landlord Insurance

If you are a landlord not living on your property, it’s in your best interest to purchase a dwelling fire policy, or DP3 insurance coverage, on your home. No matter what plans you have, risks like fires and natural disasters happen. If you’re not insured with the right home insurance policy, you could be out thousands of dollars. Additionally, purchasing extra coverage for any expensive personal items is a wise choice. Otherwise, you will have to pay for the replacement of expensive items out of pocket. That’s why a proper DP3 policy saves you money. 

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Updated October 2, 2020

Stephanie Shaykin is a seasoned writer and marketing professional with experience in real estate. With a true passion for brand storytelling and SEO, she breaks down the most complex copy into a pleasant experience for the reader. In her spare time, she enjoys creating art and cooking in her home base of Chicago, Illinois.