What Is A DP3 Insurance Policy And How Does It Work?

As a property owner, one of the worst thing you can do is purchase the wrong type of insurance for your investment property. Especially since it could cause you to lose your entire investment.

But don’t let the jargon scare you: 

Once you understand the “street name” of this policy it will be much easier to understand what is a dp3 insurance policy and how it’s related to being a landlord.

What Is A DP3 Insurance Policy?A DP3 policy is common referred to as a type of landlord insurance that falls under the Dwelling Fire Policy category. These policies apply to residential rental properties in which the property owner does not reside. Several different types of dwelling fire policies are available, but DP3’s are the most popular. 

DP3 policies are considered an Open Peril Policy. That designation means your policy covers damage from something other than items on the excluded list.

Some commonly excluded perils are:

FloodsEarthquakesMold damageIntentional damage (like arson)Acts of warTHE SIMPLY INSURANCE WAY

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What Does A DP3 Landlord Insurance 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. What Does A DP3 Insurance Policy Not Cover?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. 

When Do Homeowners Need DP3 Policies?If you’re a homeowner renting out a property that you also live in, you might need a DP3 policy. For example, if you live in a duplex and rent out the other unit(s), you will need a DP3 policy. Outside of those situations; you usually will not need a dp3 policy if you don’t own any other properties outside of your main residence. 

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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.  For this type of property you would want to look at a DP1 Policy

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.

DP3 vs. DP1 PoliciesDP3 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 ValueDP3 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 PolicyWhile 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.

Occupied vs Vacant PropertyDP1 policies as stated above are also used to cover vacant properties where DP3 polies are used to cover non-owner occupied rental properties. 

HO3 vs. DP3 CoverageHO3 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.

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.

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Taking ActionA DP3 landlord insurance policy is for your 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. 

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