DP3 insurance — also commonly formatted as DP-3 insurance — is a type of landlord insurance which protects homes that are not considered your primary residence. Generally, this coverage pertains to investment properties, such as rental or vacation homes.
DP3 policies are open peril, meaning they cover all perils except those your insurer explicitly excludes. This sets DP3 apart from DP1 and DP2 policies, which are named peril, meaning they only cover the risks that are explicitly named in the policy.
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What Is a Dwelling Fire Policy?
DP1, DP2, and DP3 policies are commonly referred to as dwelling fire policies. A dwelling fire policy offers an alternative to homeowners insurance, usually providing narrower coverage for the insured dwelling.
For example, a homeowners insurance policy covers liability, loss of income, the belongings inside the insured property, and the property itself. The typical dwelling fire policy does not cover as many risks.
DP3 insurance, however, differs from other types of dwelling fire policies in that it can provide coverage for liability, income loss, the contents of the insured dwelling, and other structures on the property.
How Does DP3 Coverage Work?
DP3 insurance can provide similar coverage as HO-3 insurance, but the exact parameters of your DP3 policy depend on your insurer, your state, and the endorsements you purchase. Here’s what you need to know about DP3 insurance coverage:
Eligibility criteria for DP3 insurance vary among states. However, common requirements include the following:
- The home is a rental property or only occupied on a seasonal basis.
- The home falls under a specified age cap, usually 60 or 80 years.
- The home’s roof falls under a specified age cap, usually 20 years.
- The home’s overall condition is above average.
- The home is considered a four-family structure or less.
What Makes DP3 Coverage Unique?
DP3 insurance is considered unique because:
- It has open peril coverage: DP3 policies are open peril policies, meaning they only exclude coverage of risks specifically named in the policy. Named peril policies are the inverse, only covering specific risks listed in the policy.
- RCV vs. ACV coverage: DP3 insurance pays out the insured home’s replacement cash value (RCV), which does not factor in depreciation, rather than its actual cash value (ACV), which does.
- Special form policy: Other types of dwelling fire policies, considered basic or broad form, provide less coverage than DP3 insurance, which is a special form policy.
What Is Covered?
DP3 insurance can provide a few different levels of coverage depending on whether you purchase endorsements to bolster your policy. With the right endorsements, a DP3 policy can resemble a standard HO3 policy.
DP3 insurance covers the physical structure of the home, and with add-ons, it can also cover:
- Personal property in the home, such as appliances
- Personal liability
- Medical expenses for visitors who are injured on the property
- Loss of use of the rental home
- Other structures on the property
- Burglary (limited)
Again, DP3 policies cover the replacement cost of any losses, meaning they will pay out the amount of money it would take to replace the loss rather than the actual cash value of the loss.
What Is Not Covered?
DP3 insurance will not cover risks that are explicitly excluded from the policy. DP3 policies commonly exclude the following losses:
- Intentional loss, which results from the beneficiary carrying out intentional damage or harm to the insured home
- Earthquake damage
- Flood or water damage
- Mold damage
- Loss caused by neglect
- Loss caused by power failure
- Loss caused by acts of war
- Nuclear hazards
- Governmental action
Though DP3 policies typically exclude flood and water damage, you might be able to purchase an insurance policy specifically for those kinds of losses.
DP3 Coverage In Action
Picture this: You’ve invested in a second home, envisioning you’ll move there when you retire. In the meantime, however, you’ve decided to rent out the home to tenants. Since rental homes face somewhat higher risks than primary residences, you opt for a DP3 policy to cover your new investment property.
Unfortunately, your second home suffered an electrical fire that destroyed the kitchen appliances, forcing the tenants to move out during repairs. In this scenario, your DP3 policy kicks in to reimburse you for:
- Repairs to the home’s structure
- The replacement value of the appliances lost in the fire
- The income you lose while your tenants are not living in and paying rent for the home
DP3 vs. DP1 vs. DP2 Coverage
Home Insurance Form Categories
Named or Open Peril
Covered Perils (Structure)
Covered Perils (Possessions)
– Fire and lightning
– Windstorms and hail
– Riots and civil commotions
– Damage from an aircraft
– Damage from a vehicle
– Vandalism and malicious mischief
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
– Fire or lightning
– Windstorm or hail
– Riot / civil commotion
– Damage from aircraft
– Damage from vehicles
– Vandalism / malicious mischief
– 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
– Glass breakage
– Damage from burglary
Same as DP1
All standard exclusions, plus water damage caused by sewer or drain backups
All except standard exclusions
Same as DP1
All standard exclusions
Of the various types of dwelling fire policies, DP3 insurance is the only open peril policy. DP1 and DP2 policies only cover perils explicitly named by the insurer, typically including fire and lightning, windstorms and hail, smoke, vandalism, and theft, among others. DP3 policies cover all perils except those explicitly named by the insurer.
You can expect any dwelling fire policy to come with all standard exclusions, but DP1 and DP2 policies usually have additional exclusions as well. DP1 policies have the most exclusions, including falling objects, frozen plumbing and appliances, and the weight of snow or ice. Both DP1 and DP2 policies exclude water damage caused by plumbing issues.
How Much Does DP3 Coverage Cost?
On average, coverage geared towards landlords is the most expensive of any of the forms of insurance for property owners:
Type of Coverage
Average Annual Premium
However, the exact price of coverage will depend on a variety of factors, among them:
- Replacement cost of the property
- Location and associated risks (e.g., natural disasters, crime rates)
- Chosen coverage limits
- Deductible amount
- Age and condition of the home
- Policyholder’s claims history
- Additional endorsements or riders for specific coverage needs
- Construction materials of the dwelling
- Security features in place
- Presence of safety systems in the property
Additionally, there may be additional out-of-pocket costs associated with DP-3. Most commonly, your policy may require paying a deductible before its coverage kicks in. Deductibles vary depending on your insurance provider, your policy, and the endorsements included in your policy. As a rule of thumb, the lower your deductible, the higher your monthly premium will be.
Depending on your provider, policy, and coverage type, your deductible may be either a set dollar amount (ranging from around $500 to $2,500) or a percentage (usually between 2% and 10%).
Deductibles can vary by coverage area as well; for example, your policy might have a 5% hurricane deductible, a $1,000 deductible for non-hurricane wind damage, and a $500 deductible for all other perils.
Alternatives to DP3 Coverage
If a DP3 policy is not in your budget or you’re exploring other options, consider DP1 or DP2 insurance for your second home.
DP1 and DP2 policies are both named peril, but DP1 offers less coverage, for which reason it costs less. You can expect a DP1 policy to cover the following perils for the primary structure:
- Hailstorms and windstorms
- Vehicles and aircraft
- Riots and civil unrest
- Volcanic activity
DP-1 coverage may be suitable if you’re on a tight budget and seeking the most basic protection for your dwelling. It could be a reasonable choice for properties in low-risk areas where the likelihood of specific perils, such as fire or vandalism, is relatively low. However, individuals opting for DP-1 should be aware that this policy offers limited coverage compared to more comprehensive options like DP-2 or DP-3.
DP-2 and DP-3 insurance both tend to cover loss of use and encompass similar lists of perils. These perils include all of the risks covered by DP1, plus:
- Falling objects
- Frozen pipes
- Broken glass
- Water overflow
- Snow, ice, and sleet
- Tearing, bulging, and cracking
DP3 takes its coverage a step further than DP2 by including personal liability insurance. With a DP3 policy, you can also add coverage for ordinance of law, water backups and sump pump overflows, and, in some cases, short-term rental. DP2 policies rarely offer these coverage options. Plus, DP3 policies are open peril, whereas DP2 policies are named peril.
You might choose a DP3 policy over a DP1 policy if you own a residential rental property since these properties are at relatively high risk and need more robust coverage.
All in All
If you’ve invested in a second home that you plan to rent out as a long-term residential property or a vacation home, a DP3 property can provide you with the landlord insurance you need. Compared to other types of dwelling fire insurance (DP1 and DP2), DP3 is more expensive but provides more robust coverage.
As an open peril policy, DP3 insurance covers many risks associated with rental properties. Plus, payouts with a DP3 policy cover the higher replacement cash value, whereas other types of landlord insurance only pay for actual cash value. These benefits make DP3 the most popular option for landlord insurance.