Dwelling Policies Explained: DP-1 vs DP-2 vs DP-3 for Adjusters

A dwelling policy insures a residence on a property-only basis, and it is the usual choice for homes the owner does not live in, such as rentals and vacation homes. ISO’s three dwelling forms build on one another: the DP-1 Basic Form covers the fewest perils and pays actual cash value, the DP-2 Broad Form adds named perils and replacement cost, and the DP-3 Special Form covers the buildings on an open perils basis. This guide uses the 2014 ISO editions (DP 00 01, DP 00 02 and DP 00 03 07 14).

Who uses dwelling policies

Homeowners forms such as the HO-3 are written for an owner who lives in the home. Dwelling forms fill the gaps:

• Landlords who rent out a house, duplex or small multi-family building they do not live in
• Seasonal, vacation and secondary homes
• Vacant homes, for example between tenants or during a sale
• Older homes or homes that do not qualify for a homeowners policy
• Owner-occupants who choose or need a dwelling form, sometimes paired with a liability policy

A tenant can also insure contents under Coverage C and, under Other Coverages, use up to 10% of the Coverage C limit for improvements, alterations and additions made at the tenant’s expense.

DP-1, DP-2 and DP-3 compared

The DP-1 extended coverage perils are windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke and volcanic eruption; vandalism or malicious mischief needs its own premium. The DP-2 broad perils are fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism or malicious mischief, damage by burglars, falling objects, weight of ice, snow or sleet, accidental discharge or overflow of water or steam, sudden and accidental tearing apart of heating, air conditioning, sprinkler or water heating systems, freezing, sudden and accidental damage from artificially generated electrical current, and volcanic eruption.

Notice what is not on any list: theft. The base forms do not cover theft of contents, and the DP-3 open perils coverage excludes theft of property that is not part of a covered building. Theft is added by endorsement: ISO’s Broad Theft Coverage (DP 04 72) is meant for owner-occupied dwellings, and Limited Theft Coverage (DP 04 73) gives on-premises coverage for dwellings the owner does not occupy.

The coverages in a dwelling policy

• Coverage A, Dwelling: the dwelling on the Described Location and attached structures.
• Coverage B, Other Structures: detached structures such as a garage or fence. The 10% of Coverage A is additional insurance in the DP-2 and DP-3, but in the DP-1 it reduces the Coverage A limit for the same loss.
• Coverage C, Personal Property: property usual to a dwelling, owned or used by the insured or family members living with the insured, while on the Described Location. Up to 10% of the Coverage C limit may be used anywhere in the world, and that use reduces Coverage C. Money, securities, most watercraft (rowboats and canoes are the exception) and most motor vehicles are not covered at all.
• Coverage D, Fair Rental Value: the rent lost on the part of the location rented or held for rental, minus expenses that stop while it cannot be lived in, for the shortest time needed to repair. If a civil authority bars use because of damage next door, it pays for up to two weeks.
• Coverage E, Additional Living Expense (DP-2 and DP-3 only): the necessary increase in living costs when the insured’s own residence is unfit to live in.

The combined 20% rule. In the DP-2 and DP-3, the insured may use up to 20% of the Coverage A limit for fair rental value and additional living expense combined, and this is additional insurance. Malik owns a duplex insured under a DP-3 with a $240,000 Coverage A limit, lives in one unit and rents the other. If a fire makes both units unlivable, the most available for lost rent and his extra living costs together is 20% x $240,000 = $48,000, not $48,000 for each.

The DP-1 difference. A DP-1 with a $150,000 Coverage A limit suffers a fire that does $140,000 of damage to the house and destroys a garage worth $18,000. Other structures coverage allows up to $15,000 for the garage, but that payment reduces Coverage A, leaving $135,000 for the house. The total is $150,000. Under a DP-2 or DP-3, the 10% is additional, so the same loss would pay $155,000.

Debris removal is included in the limit for the damaged property in all three forms. Unlike the homeowners forms, there is no extra 5% when the limit is used up.

Loss settlement

The DP-1 pays actual cash value, not more than the cost to repair or replace. The DP-2 and DP-3 pay replacement cost on buildings when the insurance is at least 80% of the building’s full replacement cost at the time of loss. Below that, they pay the greater of actual cash value or the proportional amount.

Example: a rental house with a $300,000 replacement cost is insured under a DP-3 for $195,000. It needed $240,000 (80%) for full replacement cost. Wind damage costs $48,000 to repair, with an actual cash value of $30,000. The proportional amount is $195,000 / $240,000 x $48,000 = $39,000, which is more than ACV, so the insurer pays $39,000 before the deductible once repairs are complete. Check the math in our 80% rule calculator.

Vacancy rules

Dwelling policies are often written on homes that sit empty, so the vacancy provisions come up constantly on claims. All three forms use the same trigger: the dwelling has been vacant for more than 60 consecutive days immediately before the loss. A dwelling under construction is not considered vacant.

The forms do not apply a percentage reduction for vacancy; they simply remove these perils. Freezing is a related trap: the DP-3 excludes freezing of plumbing and appliances unless the insured used reasonable care to maintain heat or to shut off the water and drain the systems, which matters for any empty house in winter.

“Vacant” and “unoccupied” are not the same thing in everyday usage: vacant usually means empty of both people and furnishings, while a furnished home nobody is living in is often called unoccupied. Because the forms do not define vacancy, adjusters document the facts carefully: when the last tenant moved out, what furniture remained, and whether utilities were on.

Liability: the personal liability supplement

The dwelling forms contain no liability section. Liability is provided by ISO’s Personal Liability form (DL 24 01), which can be added to a dwelling policy. Its Coverage L (personal liability) and Coverage M (medical payments to others) mirror homeowners Coverages E and F, with medical expenses payable when incurred within three years of the accident.

Read its business exclusion closely. Like the homeowners form, DL 24 01 treats rental activity as business except when an insured location is rented occasionally and only as a residence, or rented in part, such as one unit of a duplex the insured lives in. For a dwelling the owner does not occupy, ISO’s Premises Liability endorsement (DL 24 11) is designed to cover liability arising from that specific listed premises. On a liability claim against a landlord, confirm which form and endorsements apply before anything else.

How a dwelling policy differs from the HO-3

The buildings coverage is similar: both forms cover the dwelling and other structures on an open perils basis with the 80% replacement cost rule, and both cover personal property on named perils at actual cash value. See our homeowners policy guide for the HO-3 side.

Personal articles floaters in brief

Neither dwelling nor homeowners forms do much for valuable items, so owners schedule them. A personal articles floater is an inland marine policy that lists valuables and their amounts. The homeowners version is ISO’s Scheduled Personal Property Endorsement (HO 04 61), which covers nine classes: jewelry, furs, cameras, musical instruments, silverware, golfer’s equipment, fine arts, postage stamps, and rare and current coins.

Key rules from HO 04 61:

• Broad perils. It covers direct physical loss with only a few exclusions, such as wear and tear, insects or vermin, war and nuclear hazard, so a ring lost down a drain is covered.
• No deductible. The policy deductible does not apply.
• Newly acquired items. New jewelry, furs, cameras or musical instruments in a class already scheduled are covered for the lesser of 25% of that class’s amount or $10,000, if reported within 30 days. New fine arts are covered at actual cash value up to 25% of the scheduled fine arts amount, if reported within 90 days.
• Fine arts are agreed value. The insurer pays the scheduled amount for a total loss of a fine arts item, even if its market value has dropped.

A personal property floater, by contrast, covers a household’s furniture and household effects wherever located, on an open perils basis. Test both topics on our dwelling and inland marine practice test.