DP-2 falls under the category of dwelling property insurance, commonly used for rentals. Landlords can use DP-2 to protect against named perils (hazards) while their property is vacant for a short period and after it is rented out. Despite also being called dwelling fire insurance, dwelling property insurance covers more than fire, including DP-1, DP-2, and DP-3 policies.
Landlords may opt for basic form DP-1 insurance for minimal vacant property coverage, whereas a DP-2 policy provides expanded coverage for short-term vacancies or occupied rentals. DP-3s provide the most comprehensive coverage of all dwelling insurance policies.
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What Is a Dwelling Fire Policy?
Dwelling fire insurance covers more than fire and smoke damage. Dwelling fire insurance offers three options: DP-1, DP-2, and DP-3. Beginning with “bare bones” DP-1 insurance for vacant rentals and unoccupied structures, DP-2 and DP-3 policies offer increasingly broad coverage for landlords and homeowners in some cases.
A DP-2 policy fills the coverage gaps between minimal DP-1 and comprehensive DP-3 plans. Landlords may seek DP-2 coverage for rentals that need medium-level protection against more perils than a DP-1 but do not require full DP-3 coverage. Alternately, homeowners may opt to use DP-2 insurance for unique situations, such as renting out rooms in their house.
How Does DP-2 Coverage Work?
Candidates seeking DP-2 coverage for their property must meet certain eligibility requirements or opt for a different level of fire dwelling insurance to better suit their needs.
Eligibility
The following must apply to the property under consideration for DP-2 coverage.
- Property may sit vacant only temporarily: Your property can only remain unoccupied for a brief period to receive coverage through a DP-2 policy. Most insurers will only provide DP-2 coverage for a vacant rental for up to 60 days. Rentals unoccupied in the long term are better suited to a DP-1 policy.
- Property must meet fire dwelling requirements: Most insurers will only apply dwelling protection insurance to single-family structures, typically worth $50,000 or less. The property cannot serve as the owner’s or landlord’s primary residence.
- Most insurers require an underwriting process: Insurers usually consider your credit history, insurance score, and the properties in your portfolio during the underwriting process, which helps minimize the risk of fraud or bankruptcy claims.
What Makes DP-2 Coverage Unique?
Like DP-1 insurance, a DP-2 policy only covers certain named perils. DP-2s offer slightly broader coverage than a DP-1 policy but not as much as the most comprehensive “open” peril DP-3 plan. Broad form DP-2 insurance also differs from DP-1 coverage since it pays claims based on replacement cost value (RCV), not actual cost value (ACV), which accounts for depreciation.
What Is Covered?
DP-2 policies typically cover the following named perils:
- Fires and smoke
- Storms and lightning
- Explosions
- Riots and civil unrest
- Volcanic eruptions
- Theft
- Vandalism and malicious mischief
- Falling objects
- Weight of snow, ice, or sleet
- Overflow of water or steam from plumbing
- Sudden breakage of hot water heater
- Frozen pipes
- Electrical currents
- Glass breakage
- Collapse
- Damage from an aircraft
- Smoke
- Damage from burglary
DP-2 insurance offers more coverage than a basic form DP-1 policies for landlords and homeowners who rent out all or part of their homes. DP-2 policies cover the same perils as DP-1 plans, plus additions including vandalism, theft, collapse, and freezing pipes. DP-2 also covers loss of rent when the property needs repairs due to a named peril.
What Is Not Covered?
DP-2 insurance covers most of the perils expressly excluded from a DP-1 policy. The most common named exclusions to DP-2 insurance include:
- Earth Movement: Damages caused by earthquakes, landslides, or other earth movements are often excluded
- Flood and Water Damage: Damage resulting from floods, sewer backups, or water seepage may be excluded
- Power Failure: Losses due to power failure or power interruption are typically excluded
- Neglect: Damage resulting from the policyholder’s neglect, failure to maintain the property, or intentional acts may be excluded
- War and Nuclear Hazard: Damage caused by war, nuclear events, or related perils is usually excluded
- Ordinance or Law: Coverage for costs associated with changes in building codes or laws is often excluded
- Intentional Acts: Damage resulting from intentional acts or criminal activities by the insured may be excluded
You may be able to cover water damage through other means as an optional endorsement to the DP-2 or a separate flooding/water damage policy. Some DP-2 policies automatically cover perils like theft and vandalism, while others charge extra for these optional endorsements. You may also require tenants to buy renters insurance to cover their personal property, which, like flooding, is not typically covered by dwelling or homeowners insurance plans.
DP-2 vs. DP-1 vs. DP-3 Coverage
Home Insurance Form Categories | Named or Open Peril | Covered Perils (Structure) | Covered Perils (Possessions) | Exclusions |
|---|---|---|---|---|
DP1 | Named | -Fire and lightning -Windstorms and hail -Explosions -Riots and civil commotions -Damage from an aircraft -Damage from a vehicle -Smoke -Vandalism and malicious mischief -Theft -Volcanoes | No automatic protection, personal property coverage required for landlord-owned equipment only (tenant possessions not covered) | All standard exclusions, plus: -Falling objects -Weight of snow, ice or sleet -Water overflow from plumbing, HVAC,indoor sprinklers or water heater -Frozen plumbing, HVAC, sprinkler system or appliances -Artificially generated electrical currents |
DP2 | Named | -Fire or lightning -Windstorm or hail -Explosion -Riot / civil commotion -Damage from aircraft -Damage from vehicles -Smoke -Vandalism / malicious mischief -Theft -Volcanic eruption -Falling object -Weight of snow, ice or sleet -Overflow of water or steam from plumbing, HVAC, etc. -Sudden breakage of a hot water heater, etc. -Frozen pipes -Electrical currents -Glass breakage -Damage from burglary -Collapse -Glass breakage -Damage from burglary -Collapse | Same as DP1 | All standard exclusions, plus water damage caused by sewer or drain backups |
DP3 | Open | All except standard exclusions | Same as DP1 | All standard exclusions |
DP-2 insurance offers broader coverage than a DP-1 policy but not as much as a DP-3. A broad form DP-2 policy covers perils excluded by DP-1 coverage, most notably including falling objects, frozen pipes, and vandalism and theft, either automatically or by endorsement. DP-2 insurance pays claims according to replacement cost value and offers perks like loss of rent.
How Much Does DP-2 Coverage Cost?
DP-2 coverage and other levels of dwelling insurance tend to cost more than homeowners insurance on average since landlords are not on site at all times to mitigate potential hazards and monitor tenant behavior. Many landlords require tenants to buy renters insurance to cover the tenants’ personal property and supplement the landlords insurance plan. Overall, the average cost of premiums for landlords, homeowners, and renters insurance is as follows:
Type of Coverage | Average Annual Premium |
|---|---|
Landlords Insurance | $2,012 |
Homeowners Insurance | $1,610 |
Renters Insurance | $189 |
The cost of DP-2 insurance depends especially on where a property is located and other factors, including its condition, square footage, likelihood of susceptibility to natural disasters, and relative neighborhood building costs. Naturally, premium costs for DP-1, DP-2, and DP-3 policies increase with each higher level of coverage. Additionally, the average DP-2 policy might include a $500—$5,000 deductible, with claims paying the full RCV for damage from named perils.
Alternatives to DP-2 Coverage
Depending on your circumstances, you may need more basic DP-1 coverage for your vacant rental or a more extensive DP-3 policy with open coverage. Explore your options below.
DP-1
DP-1 coverage is used only for vacant properties, specifically those that sit vacant for more than 60 days, whereas most DP-2 policies limit property vacancies to a maximum of 60 days. DP-1 coverage suits rentals that sit vacant for long periods and other unoccupied properties, such as houses for sale, boat houses, barns, and gazebos.
DP-1 insurance offers an affordable option for landlords who need minimal coverage for their rental property or homeowners looking for basic protection of an unmanned structure on their property. Unlike DP-2 and DP-3, DP-1 insurance accounts for depreciation and pays claims according to the property’s ACV.
DP-3
DP-3 insurance suits landlords and homeowners seeking the highest level of dwelling coverage. Unlike DP-1 and DP-2 policies, DP-3 insurance covers “open” perils, enabling policyholders to take out a claim for any damages not specifically excluded in the policy. DP-3 insurance also does not name exclusions, save for the standard exclusions common among all fire-dwelling policies.
DP-3 coverage not only allows claims for all hazards but, like DP-2 coverage, pays the full replacement cost. Also, like DP-2 insurance, DP-3s offer extended benefits due to property damage, such as loss of rent. DP-3s also tend to include high personal liability limits of up to $1,000,000 and varied options for unique endorsements and upgrades.
All in All
DP-2 insurance offers mid-level coverage between a DP-1 and DP-3 dwelling fire policy. Also called broad form dwelling insurance, a DP-2 policy covers more hazards than a DP-1, despite both types of policies still being limited to a named perils list. DP-2 does not apply to vacant properties for more than 60 days.
DP-2 coverage differs from DP-1 policies in that it pays claims according to replacement cost value, not actual cost value, which accounts for depreciation. Homeowners who rent out all or part of their property may also pursue DP-2 coverage. However, it tends to cost more than homeowners insurance for similar perks like personal liability and loss of rent.