A named peril insurance policy is a policy that specifically lists covered perils. In these policies everything that is not listed is not covered, as opposed to an open peril policy, which is an insurance policy that covers all possible perils with a small list of exclusions. Typically, named peril policies are less expensive than open peril policies. However, if you choose to get a named peril policy for your rental property, you are going to want to purchase extended coverage.
Named peril policies can be classified as either DP-1 or DP-2 policies. The main difference is that DP-2 policies list more perils than DP-1 policies. Basically, policies vary by insurance carrier but there are perils that are essential to have coverage for, which many DP-1 and DP-2 policies may be missing.
At Visio Lending, if you have a DP-1 or DP-2 policy, we require extended coverage for:
- Fire
- Lightning
- Internal & External Explosion
- Civil Commotion
- Smoke
- Aircraft & Vehicles
- Riot
- Vandalism & Malicious Mischief
- Volcanic Eruption (For CA, HI, OR, or WA)
- Sinkhole (For FL properties and only required when the subject property has been identified as having had any sinkhole activity)
In addition to missing coverage for many important perils, DP-1 and DP-2 insurance policies often exclude Loss of Rent Coverage. This means that if you are unable to rent out your property due to a fire, flood, or guest damage, your rental income will NOT be covered. Further, DP-1 Policies only cover the Actual Cash Value of the property, which is the replacement cost minus depreciation.
At the end of the day, even though DP-1 and DP-2 policies are less expensive, they require additional coverage. At Visio Lending, we recommend getting a DP-3 Policy for the optimal protection for your rental.
To learn more about landlord insurance, visit our Insurance Page. For more landlord resources, check out our Investor Resource page.
Related: Comparing Landlord Insurance Policies, What to Look for in a Vacation Rental Insurance Policy
