What is a DP3 policy? A complete guide to landlord insurance

DP3 policies are designed for properties the owner does not use as a primary residence like rental homes and vacation properties. Sometimes called landlord insurance, a DP3 policy primarily covers the physical structure of a home and the owner’s personal property against losses from a wide range of incidents.

What does a DP3 policy cover?

A DP3 policy — which stands for Dwelling Policy Form 3 — offers the broadest coverage of all dwelling policies. However, what is covered and not covered differs from standard homeowners insurance (an HO-3 policy) in a few ways. Namely, DP3 insurance is solely for non-owner-occupied properties, and policies do not automatically include personal liability coverage or medical payments coverage.

Here is an expanded look at the types of coverage a DP3 policy typically offers:

• Dwelling coverage (Coverage A): The most substantial portion of the policy, this covers damage to the physical structure of the home and attachments like garages.

• Other structures coverage (Coverage B): This covers detached structures on the property, such as standalone garages, sheds, guest cottages, and fences.

• Personal property (Coverage C): This covers the owner’s personal property like appliances left in the home for tenant use. It does not cover tenants’ belongings (for that, tenants must purchase renters insurance).

• Fair rental value (Coverage D): If your home is damaged in a covered incident and you can’t rent it to tenants until repairs are completed, this can help owners recoup lost rental income.

• Additional living expenses (Coverage E): If you (the owner) are temporarily occupying the home and it’s damaged in a covered event that renders it uninhabitable, this coverage can help pay for short-term lodging (like a hotel). It can also help cover expenses from things like dining out or doing laundry at a laundromat.

How and when DP3 policies cover damage

DP3 policies cover dwelling and personal property losses in two different ways.

Damage to the physical structure of the home (the dwelling) is covered on an open-peril basis. That means, losses stemming from any incident that is not specifically excluded by the policy are covered.

Personal property, on the other hand, is covered on a named-peril basis, meaning losses from incidents not specifically named are excluded. These perils typically include:

• Fire
• Lightning
• Explosion
• Vandalism
• Malicious mischief
• Wind
• Civil commotion
• Smoke
• Hail
• Aircraft
• Vehicles
• Volcanic eruption
• Riot
• Burglary
• Ice, sleet, and snow (weight-related damage)
• Glass breakage
• Accidental discharge of water
• Freezing objects
• Falling objects
• Electrical current
• Collapse
• Sudden and accidental tearing, cracking, burning, or bulging

Actual cash value vs. replacement cost value in DP3 policies

Should a covered incident occur, DP3 policies pay out two ways depending on what’s damaged. Losses to the dwelling and other structures on the property are paid on a replacement cost basis. Put simply, the claim payout you receive will be enough for repairs or replacements at today’s going rate, minus your deductible.

Personal property works differently. In the event of a covered incident, personal property damage or loss is paid out on an actual cash value basis. This means your claim payout is reduced to account for depreciation due to the item’s age and wear.

What doesn’t a DP3 policy cover?

As mentioned, DP3 policies include open-peril coverage for the dwelling and other structures on your property — anything that isn’t specifically excluded is covered. So, what’s typically excluded?

Some of the most common exclusions are damage from:

• Intentional acts by the insured
• Wear and tear
• Animals and insects
• Freezing due to neglect or vacancy
• Theft if the dwelling is under construction
• Vandalism, malicious mischief, and theft if the dwelling is vacant for 60 days or more
• Floods and water damage
• Earthquakes
• Power outages
• Mold
• Pollutants
• Nuclear hazards
• War
• Laws, ordinances, and governmental actions

Other gaps in coverage to be mindful of are personal liability and medical payments coverage, neither of which are included in DP3 policies. Personal liability (often referred to as Coverage L) helps protect the homeowner financially if they are found legally responsible for an injury to another person or damage to someone else's property. Medical payments coverage (Coverage M) can help pay for a guest’s medical expenses no matter who is at fault.

DP3 policyholders may be able to add these coverages (and a few other types) to their policy by purchasing an endorsement (also called a rider). Speak with an insurance agent to determine which options are available and best for your specific situation.

Who needs a DP3 policy?

DP3 policies are often the best insurance option for investment homes, but there are other scenarios where you might need this type of coverage:

• You own a rental home. If you rent out the entire home or a portion of the home to tenants and you don’t regularly occupy the property, DP3 policies may provide the coverage you need.

• You own a multi-unit dwelling. If the home has up to four rentable units, a DP3 policy could provide the right coverage.

• You own a vacation or seasonal home. If you have a second property that you use for vacations or as a seasonal home, you might not be able to get standard coverage. DP3 policies can be the path to securing coverage for non-primary residences.

• You have an older home. Some insurers don’t offer affordable insurance for older homes or those with roofs that are 10 or more years old. In these instances, a DP3 policy could be the solution, though you wouldn’t get the same level of protection as a traditional home insurance policy offers.

DP1 vs. DP2 vs. DP3

DP3 policies aren’t the only option when it comes to non-primary residences. DP1 and DP2 policies are typically cheaper but offer less coverage. Here's how dwellings and other structures are covered by a DP1 vs. DP2 vs. DP3 policy.

How to buy a DP3 policy

Here’s how to go about buying a DP3 policy.

1. Determine how much coverage you need

Think through the following:

• Your home’s value: Estimate the replacement cost of your dwelling — how much it would cost to rebuild based on today’s rates for materials and labor. An insurance agent can help finalize this calculation.

• Your coverage needs: Think through who will occupy the property and for how long, and what personal property you will leave in the home. Keep in mind that extended periods of vacancy can impact what’s covered and what’s not in a DP3 policy (like theft, for example). And remember that tenants’ property is not covered by a DP3 — only the owners’ property is (think appliances or furniture you provide). Speak with an agent about your needs to determine if any available endorsements can help fill coverage gaps.

• Your local risks: Do you need additional coverage for perils such as earthquakes, floods, or other risks that aren’t automatically covered? You may need to add an endorsement to your policy or buy a separate type of insurance altogether.

2. Get multiple quotes

Shop around for a DP3 policy with multiple insurers. It’s a good idea to get quotes from at least three companies before you buy a policy. This can help you find a competitive rate for the coverage you need.

Make sure to get quotes for the same types and levels of coverage. For example, you will want to compare prices for the same amount of dwelling coverage, the same deductible, and the same endorsements (if you wish to add any).

3. Compare insurers

Once you have at least three quotes, you can start comparing rates, but remember that price shouldn’t be the only deciding factor. There are other considerations you may want to take into account, including:

• Coverage levels: Do the policies offer the same amount of coverage and the same endorsements (if any)? Do any automatically include added protections without charging extra? Compare coverage carefully to see if any insurers stand out.

• Financial stability: You want to get insurance from a company that can pay out future claims with no issues. Check the insurer’s financial stability ratings from third-party assessors like AM Best, Moody’s, and Standard & Poor’s.

• Customer reviews: You can check consumer reviews and complaints on websites like the Better Business Bureau, Trustpilot, and the National Association of Insurance Commissioners. Look for common complaints and see if any themes emerge about the insurer’s strengths and weaknesses.

DP3 policies can offer comprehensive coverage for a broad range of risks when you own a rental property or second home. While DP1 and DP2 policies may be cheaper, they only cover a limited range of specific perils. Of course, DP3 policies are a bit more expensive for this reason, but you can enjoy greater peace of mind knowing your investment is protected.