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The Differences Between DP-1, DP-2, and DP-3 Insurance

Written by Kristy Snyder
5 min. read
Reviewed by Cara Carlone
CPCU, API, AINS, property & casualty licensed agent

Landlord insurance, or dwelling policy insurance, protects property owners against a spectrum of risks. It’s similar to homeowners insurance in that it covers property damaged by various perils.

There are three kinds of landlord insurance: DP-1, DP-2, and DP-3. Here’s how they compare:

  • DP-1: Covers only nine basic perils, lower cost
  • DP-2: Covers 18 named perils, more comprehensive
  • DP-3: Covers open perils, more expensive

Choosing the policy that’s right for your rental property can take time and effort. Let’s dissect each policy so you can know the difference between DP-1, DP-2, and DP-3 and pave the way for a well-guarded property investment.

DP-1 vs. DP-2 vs. DP-3 Comparison Chart

Check out our DP-1, DP-2, and DP-3 comparison chart for an easy look at the differences between landlord insurance options.

DP-1
DP-2
DP-3
Main Structure Coverage
Yes
Yes
Yes
Other Structures Coverage
Varies
Yes
Yes
Personal Property Coverage
Varies
Yes
Yes
Liability Coverage
No
No
Yes
Loss of Use Coverage
No
Varies
Varies
Perils Covered
9
18
Open
Reimbursement Type
Actual cash value
Replacement cost value
Replacement cost value
Best Use Cases
Vacant properties; low-cost rental property
Middle-ground rental properties
More expensive or older rental properties; rental properties where you store personal property

Property insurance is a safety net for homeowners and landlords. Your policy helps pay for damages after an accident or act of god. Key components include:

  • Main structure coverage: Safeguarding the physical structure of the home, structural coverage includes walls, roof, and the foundation.
  • Other structures coverage: Offering protection for other structures on your property, other structures coverage insures things like a detached garage or shed.
  • Personal property coverage: Protecting the landlord’s personal belongings within the home, personal property coverage insures items that do not belong to the tenant within the property.
  • Liability coverage: Shielding against legal responsibilities for injuries or property damage, liability coverage offers more protections beyond the property’s physical structure.
  • Loss of use coverage: Kicking in if your tenants need to live elsewhere due to a covered peril, loss of use coverage helps pays for temporary relocation costs while repairs are made.

Terms to Know

  • Peril: A peril is an event that causes damage or loss
  • Actual cash value: Actual cash value factors in the depreciated value of the damaged or lost item, reflecting its age and condition.
  • Replacement cost value: Replacement cost value does not factor in depreciation, instead focusing on replacement with a new, similar item at its current market value.

General Exclusions

Landlord insurance typically does not cover renters’ personal property — renters should have their own policy to cover these items. You also cannot use it to pay for upgrades or repairs required by law. Finally, it does not cover certain perils, such as:

  • Common wear and tear
  • Earthquakes
  • Flooding
  • Mold
  • Neglect
  • Sump pump overflow
  • Water backups

What Is DP-1 Insurance?

DP-1 insurance is a basic policy providing fundamental coverage. It has a strict list of nine perils it covers. If your rental property suffers damage from a non-covered peril, you do not receive reimbursement for repairs.

Overall, DP-1 insurance is less comprehensive than DP-2 and DP-3 insurance. Because of that, it’s better for those seeking essential coverage on a tight budget or safeguarding an unoccupied property. For example, you might have moved out of your primary residence and not have anyone living in your old home yet. Or, you might have inherited a house you’re leaving as a vacant property before putting it on the market.

Coverages and Exclusions

DP-1 insurance pays you for the actual cash value of your damage. This means you get reimbursed for the current value of the home, not the full replacement cost. The nine covered perils in DP-1 insurance include:

  • Aircraft
  • Civil disturbances or riots
  • Explosions
  • Fire
  • Hailstorms or windstorms
  • Lightning
  • Smoke
  • Vehicles
  • Volcanic eruptions

Any damage caused by an event that is not one of the nine perils listed above is excluded from DP-1 coverage, meaning you would be responsible for 100% of the repair costs.

How DP-1 Works: See It In Action

Imagine you inherit a home from your parents after their passing. Since you already have a residence, you let the property sit vacant while deciding whether to list it for sale or rent it out. During this time, it would be a good idea to take out DP-1 insurance on the property, as it offers basic coverage for unexpected events.

While your home is unoccupied, lightning strikes it and starts a fire. The fire destroys the roof, necessitating the need for a full replacement. Luckily, this is a covered peril.

However, your insurance company pays for the actual cash value of the roof, not the cost of replacing it. A new roof might be worth $20,000, but since the roof on the home was already ten years old, it does not have the same value. Instead, the insurance company might only give you $10,000 to replace the roof.

What Is DP-2 Insurance?

The next step up the ladder from DP-1 insurance is DP-2 insurance. It offers a medium level of coverage by doubling the number of perils covered by DP-1 insurance. But when comparing DP-2 vs. DP-3, DP-2 does not offer as much coverage.

While less comprehensive than DP-3, DP-2 suits property owners seeking a balance between cost and coverage. It’s ideal if you want to rent out a property you own, as it offers more coverage for accidents that can happen when people live in a home. You might also want this insurance if you plan on keeping some of your personal property in the rental’s basement or attic.

Coverages and Exclusions

DP-2 provides the replacement cash value for repairs, meaning you should not have to pay out of pocket for repairs. In addition to the covered DP-1 perils, it also covers:

  • Accidental discharge or overflow of water or steam
  • Broken glass
  • Collapse
  • Cracking, bulging, or tearing
  • Falling objects
  • Freezing pipes
  • Theft
  • Vandalism
  • Weight of ice and snow

Any damage caused by an event that is not one of the perils listed above is excluded from DP-2 coverage, meaning you would be responsible for the entirety of the repair costs.

How DP-2 Works: See It In Action

Again, imagine you inherit a house from your parents. But instead of letting it sit empty for an extended period, you pack up your parents’ belongings, store them in the attic, and rent out the place to a tenant. DP-2 insurance is a good choice for this situation because it covers your property in the attic and the structure itself.

During a big winter storm, the pipes in the home freeze, causing them to burst. This has caused $2,000 of water damage and the need to replace $5,000 worth of piping. The pipes were older, so they’re not worth much in actual cash value.

However, a DP-2 policy provides the replacement cash value for repairs. Therefore, it pays to have new pipes installed and your floorboards repaired from the leaking. You should receive payment for the $7,000 to fix the house.

What Is DP-3 Insurance?

DP-3 insurance offers more extensive coverage than DP-1 and DP-2 coverage. It has open perils coverage, meaning it covers anything that is not specifically excluded. It also includes personal liability coverage. The other policies do not.

There’s a huge difference between DP-1 and DP-3 insurance in terms of coverage and cost. With a DP-3 policy, you have coverage for nearly every conceivable disaster, but you also pay higher premiums. When deciding between DP-1 vs. DP-3, take a look at costs to see which fits your budget.

Overall, DP-3 coverage is a good option for high-value rental properties. It also makes sense for older rentals where the owner would rather receive the full replacement cost instead of the actual cash value for damages.

Coverages and Exclusions

As open peril policies, DP-3 plans cover everything except for what is explicitly listed as an exclusion. Typically, DP-3 insurance may exclude coverage for:

  • Earthquakes
  • Flooding
  • Mold
  • Neglect
  • Nuclear hazards
  • Repairs required by law
  • War
  • Water backup and sump pump overflow

How DP-3 Works: See It In Action

Imagine that the home you inherited from your parents is a million-dollar mansion. With its costly upgrades and finishes, repairing any damages on your own would be expensive. DP-3 insurance makes more sense in this situation because it covers nearly every possible peril, reducing your chances of a huge out-of-pocket expense.

Consider a peril not covered by a DP-1 or DP-2 policy, such as an animal attack caused by a bear. The bear runs onto your porch, rips the door off its hinges, and smashes holes in the wall. Overall, the bear caused $15,000 worth of damage. Animal attacks are not on the exclusion lists of common DP-3 policies, so even though it’s unlikely, it should be a covered peril.

A DP-3 policy pays the replacement cash value for these items, so you do not have to worry about depreciation. You should receive the full cost to repair the home.

What This Means For You

Getting DP-1, DP-2, or DP-3 landlord insurance can help protect you financially if your rental property suffers damage. DP-1 offers basic coverage that’s good if you want the bare minimum. For a step up, consider DP-2 insurance, which switches to replacement cash value for claims. DP-3 insurance is more robust and covers even more perils, so it’s better for properties with a high value. Before deciding which policy to get, consider the pros and cons carefully and determine what you’re willing to pay in monthly premiums.