Homeowners insurance usually covers owner-occupied single-family residences, which means if the owner does not live at the property, it is not covered. That is why it is essential for landlords to have a designated landlord insurance policy. Most landlord insurance policies come with property protection to insure the basic structures of the home and liability protection to help with medical and legal expenses if someone is injured on the property. However, not all landlord insurance policies are created equal. There are three levels of policies: DP-1, DP-2, and DP-3. Here is an in-depth look at each of them.
DP-1
The DP-1 policy is the most affordable yet offers the least amount of coverage. If something were to happen to your property, this policy only covers the Actual Cash Value of the property, which is the replacement cost minus depreciation. It does not come with Loss of Rent coverage, so you will not be covered for any rental income if you cannot rent out your property due to a natural disaster. Further, it is a named peril insurance policy, meaning only perils specifically listed in that policy are covered. Anything that is not listed is not covered. Here are some of the common perils protected by a DP-1:
- Fire and Lighting
- Windstorm and Hail
- Riot and Civil Commotion
- Smoke
- Aircraft
- Vehicles
- Vandalism and Malicious Mischief
DP-2
The DP-2 policy is the middle-ground policy. It is more expensive and includes more coverage than a DP-1 policy. One key differentiating factor is that a DP-2 policy will include Replacement Cost Coverage, instead of Actual Cash Value. Some DP-2 policies will even include Loss of Rent Coverage. Like a DP-1 policy, a DP-2 policy is a named peril insurance policy yet with more listed perils. It is common for a DP-2 policy to have all the above listed DP-1 perils as well as:
- Internal and External Explosion
- Riot
- Glass Breakage
- Accidental Discharge or Overflow of Water
- Falling Objects
- Freezing Pipes
- Electrical Damage
- Collapse
- Tearing Apart, Cracking, Burning Bulging
DP-3
The DP-3 is the most expensive policy yet has by-far the best coverage. Loss of Rent Coverage and Replacement Cost Coverage are standard for DP-3 policies. Additionally, a DP-3 policy covers ALL perils except for a small exclusion list. Some of the perils that might be on the exclusion list are:
- Neglect
- War
- Nuclear Hazard
- Governmental Action
Visio Lending recommends DP-3 policies in order to protect your investments with the best coverage possible. To learn more about landlord insurance, visit our Insurance Page. Also be sure to check out our Investor Resources.
Related: Landlord Insurance: The Ultimate Guide, What to Look for in a Vacation Rental Insurance Policy
