A DP1 policy is a basic form of insurance for homes and rental properties that are vacant most of the time. It is more limited than DP2 and DP3 policies. DP1 is a named peril policy that covers the actual cash value of damages resulting from a covered peril. It covers the property for its actual cash value, not replacement cost. DP1 also covers the property for its actual cash value, not replacement cost.
It could also be called Dwelling Fire Form 1 insurance. These policies are best for properties that aren’t eligible for typical home owner’s policies.
What Do DP1 Policies Cover?
A DP1 policy is a very basic insurance policy. It’s a named-perils policy. This implies that it only covers specifically named perils in the policy form.
DP1 policies protect against damage from some common perils, including:
- Internal and external explosions
- Riots and civil commotions
- Fire and lightning
- Volcanic explosions
However it doesn’t cover all common perils. Because DP1 is a named perils policy, it only covers damage to the home from those nine incidents listed in the policy. That’s why it’s so important to read through the policy before you buy a DP1 policy. You don’t want to be stuck with enormous repairs bills that might otherwise be covered if you had a different policy, like a DP3 policy. Some DP1 policies protect against vandalism and malicious mischief while many don’t. Therefore, it’s necessary to read the policy form to see whether it protects against vandalism.
DP1 policies also never cover freezing pipes. Freezing pipes can cause major water damage and create the need for very expensive repairs.
What is the Difference between DP1, DP2, and DP3 policies?
Apart from DP1, there are two other types of dwelling fire policies—DP2 and DP3 policies.
Just like a DP1, a DP2 policy is also a named-perils policy. However, the list of covered perils is more extensive than that of a DP1. A DP2 policy usually covers the home for damage from:
- Fire or lightning
- Cracking or bulging
- Freezing pipes
- Volcanic eruption
- Weight of snow
- Electrical damage
- Glass breakage
- Water or stream
A DP3 policy is an open perils policy
This means they insure against all perils except those specifically excluded in the policy form. They are more expensive than a DP1 or DP2 policy, but then, they provide coverage against more incidents/perils. So instead of naming what it covers, it names the few exclusions that it doesn’t protect against.
Instead of insuring the home for its actual cash value like DP1 and DP2, the DP3 policy insures the home for its replacement cost. This means that it pays what it actually costs to repair your home with materials and labor at the current market rate. It does not subtract depreciation.
DP Policies: Reimbursement in Practice
DP1 policy is paid on an actual cash value basis. That means depreciation is deducted from your claims payout.
For instance, if your roof suffers wind damage and your roof is 12 years old. Let’s assume that the total repair cost will be $20,000.
Your insurer will calculate your roof’s replacement cost and deduct its depreciation from your payout. The calculation looks like this:
R = replacement cost of the item
E = expected life (lifespan) of the item
C = current life of the item
ACV = actual cash value
Thus: R× (E -C) / E = ACV
So if your roof has 15 more years of life in it, your payout comes to: $20,000 x (15-12) / 15 = $5,000. You’d pay the other $15,000 out of pocket for the roof damage.
However, if you have a DP2 or DP3 policy, you’re more likely to receive the $10,000 that it costs to replace the roof because they’re not deducting depreciation from your award amount. You’d only be stuck paying the deductible you agreed to pay.
Who Needs a DP1 Policy?
DP3 policies are usually the preferred landlord insurance for people with rental properties. However, there are some situations where a DP1 policy is the best choice
- Own a vacant property.
- You own a rental property and you’re also on a very tight budget.
- Bought a new house and your old house is vacant pending a sale.
- You inherited a house after someone passed away, and it’s sitting empty while you’re trying to sell it.
- Own investment property that’s between tenants (more than 30 days) you might consider a DP1 policy
It may be really tempting to save money by letting these homes go uninsured. However you must invest in vacant home insurance as long as you own a vacant property. If damage occurs, you could be on the hook for tens of thousands of dollars in repairs. One of the highest risks affecting vacant homes is that no one is there to find small issues that have the potential to turn into bigger ones. Such issues include:
- People seeking to vandalize or steal from the vacant home
- Undetected water leaks, etc.
Does my DP1 policy cover vandalism and malicious mischief?
Vandalism and malicious mischief are included in standard DP1 policies. however many of the policies don’t include it as a named peril. Check your insurance coverage to see if your policy covers vandalism.
Can I buy a DP1 policy for the home I live in?
DP1 policies are mostly for properties that the homeowner is not occupying. This is because owner-occupied homes and rental or vacant properties have different risks. For instance,, you’ll more likely notice water damage from a leaking pipe in the house you live in than in a home that sits vacant most of the time. Also, a DP1 policy doesn’t cover your personal property inside your home. A better alternative for basic home owners is HO3
What doesn’t a DP1 policy cover?
DP1 policies do not cover any perils that are not specifically named in the policy. This includes some common sources of damage such as theft, freezing pipes, appliances, falling objects (like trees), or power surges.
In conclusion, whatever be the reason why a property under your care is vacant, there’s an insurance policy out there that can meet your specific needs.
In essence, if a home is going to be vacant for more than 30 days, a DP1 policy might be a good option to consider. It covers common perils that might not be noticed immediately because there’s no one on the property to see it. While the DP1 is also used by landlords with tenants, it’s not the most robust option. A DP2 or DP3 policy is usually a better fit.
Protecting your home is extremely important. If you don’t live in your property and want to get coverage, talk to a qualified insurance agent today to get a suitable . We can get you the right coverage based on your needs.