A DP1 policy, often referred to as Dwelling Fire Form 1, is a straightforward form of insurance under the home insurance policy umbrella. This type of policy is used to ensure both vacant homes and rental properties from nine named perils.
The DP1 policy is more limited than DP2 and DP3 policies as it’s a named peril policy, which means it will only provide cover for the actual cash value of damage to the home or rental property that results from one of the nine perils listed in the policy. (See also: Human Perils)
Remember: DP1 policies do not cover the replacement costs
The property will not receive any cover for any other damages or perils that are not listed, so be prepared to dip into your pocket for those not listed.
Usually, these policies are selected for properties that do not meet standard homeowners’ insurance requirements.
As mentioned, this policy is very simplistic and limited as it’s a named peril; it only covers against perils detailed explicitly in the policy form.
A DP1 policy will protect against the following nine perils:
- Fire and lighting
- Internal and external explosions
- Volcanic explosions
Don’t Forget: If your property is damaged from one of the perils named above, you’ll be covered; if it’s not listed and an incident occurs, it will not be covered.
Besides covering the mainframe of the home, a DP1 policy will cover other structures such as garages, fences, sheds, personal property, and ensuring the rental value of a building is fair.
Note that water damage from pipes or appliances, as well as vandalism, are not covered. Vacant homes or rental properties are prone to experiencing damage from these two perils.
Key Fact: Vandals are one of the prominent causes of damage to vacant homes.
It’s vital that you read through your policy before you purchase a DP1 policy, as some may offer protection against things like malicious mischief.
Not reading thoroughly could lead to substantial repair bills from damages that could be covered by a different dwelling policy.
Tip: Freezing water pipes often occur in unoccupied homes. The water damage caused by freezing pipes can be severe and very expensive, so if you decide to take out a DP1 policy, make sure you prepare your house for wintery conditions.
See a sample DP-1 Policy here
Who Should Get a DP1 Policy?
Typically, a DP1 policy is suited for property owners, where you or another tenant does not occupy the home. You may want to purchase the property if you:
- Own a vacant property
- Possess a rental property and are on a tight budget
- Purchased a new home, and your previous house is vacant awaiting a sale
- Inherited a house from a recently deceased person, and it's left empty while you are trying to sell
- Possess an investment property that's currently unoccupied awaiting tenants, and you think it might remain unoccupied for more than 30 days
Since A Dp1 Policy Has Limited Coverage It’S Best For Covering Vacant Rentals.
While it can be tempting to hold on to a few pennies by leaving your properties uninsured, you have to invest in vacant home insurance for the period you own vacant property.
There’s always the possibility of damage occurring, and without insurance, you could have to find tens of thousands of dollars to repair your home.
The idea of a home being vacant with nobody in is a big risk in itself, and it also raises the chance of small issues not being recognized and then escalating to a big issue.
Extra Information: Some issues that may go unrecognized are vandalism, theft and stealing, squatters, and undetected water leaks.
DP1 Actual Cash Value
Typically, DP1 policies operate using an Actual Cash Value, and it’s important to know exactly what this means when figuring out if a DP1 policy is the best option for you.
Say, for example, you bought a car, and it was five years old, the value of your car will naturally depreciate. Actual cash value (ACV) operates similarly; the older your house gets, the less it is worth.
Mini Round-Up: Rental properties insured with Actual Cash Value will have depreciation charges deducted from any rewarded payouts.
A windstorm causes severe damage to your roof and causes half of your roof to rip off your rental property, so this needs to be replaced and repaired.
Your insurance company will figure out your payout for your roof’s replacement cost and deduct the devaluation costs from your total claims payout.
So, for instance, your roof is 20 years old, and it will cost around $10,000 to repair and replace your roof, and the roof has an expected life span of 25 years.
The method your insurer will use to figure out your payout is:
Formula: Replacement Cost x (Expected lifespan – Current life span) / Expected life span= Actual Cash Value (R x (E-C) / E = ACV)
For this example the calculation would look something like this: $10,000 x ( 25-20) / 25= 2,000. Therefore, you would only receive a payout of $2000 from your insurance company, leaving you to pay the remaining $8,000 to repair your damaged roof.
Other Dwelling Policies
Along with DP1, there are also two other types of dwelling fire policies, and these are referred to as DP2 and DP3.
DP1 and DP2 policies are named perils policies, but a DP2 policy covers around nine different policies that the standard DP1 does not offer protection.
However, different from the other policies, a DP3 policy is an open-peril agreement. This means that the insured individual is protected against all perils, apart from those specifically mentioned as exclusions in the agreement policy.
While a DP1 policy operates on an Actual Cash Value (ACV) when the home’s worth is considered depending on how old or new the vacant property is, the insurance company will implement depreciation into the total payout you receive after a claim.
However, DP2 and DP3 policies are generally Replacement Cost Insurance, meaning an insurance company will not deduct any depreciation cost from the total payout the insured is awarded.
DP1 vs. DP2
DP1 and DP2 policies are both named-peril policies, but a DP2 policy provides the same nine protections as a DP1 but covers even more perils- usually eighteen.
Unlike your standard DP1 policy, a DP2 policy will cover freezing pipes and vandalism. As noted before, a home that has been left vacant for a lengthy period will be increasingly susceptible to such things.
DP1 vs. DP3
One of the significant differences between a DP1 and DP3 policy is that typically a DP1 policy protects against only nine perils and operates using an actual cash value system.
However, a DP3 policy is an open perils policy and provides cover for all perils apart from those listed as exclusions within the agreement form and uses the replacement cost methods.
*Except those detailed in the policy as uncovered perils.
Note: Only some policies have personal liability and personal property cover, so ask your agent or thoroughly check your policy.
DP1 Policy Round-Up
DP1, also referred to as the Dwelling Fire Form policy, is a type of coverage that helps secure a property left vacant or is being rented to tenants.
The DP1 policy is the most basic of three, covering only nine specific perils. If the peril is not one of the following, fire and lighting, internal and external explosions, windstorms, hail, riots, smoke, aircraft, vehicles, or volcanic explosions, you will not be covered.
DP1 policies produce a high level of exposure to pretty common incidents such as freezing pipes or vandalism.
This policy only provides cover for the building-only, but the option to add cover for liability cover or personal property is available for a surplus cost.
If you need to put in a claim, it’s essential you know the settlement is determined using the actual cash value of any given loss. So, expect to receive a payout for the damage with the depreciation of your property deducted.
Note to Reader
This information is for informational purposes only. Each insurance company has different coverages for its individual policies.
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