There are 3 typical policy types you can choose from when purchasing a landlord policy. We will discuss what perils are covered on each type so you can make an educated decision on which coverage is best for you. Like any decision you must weigh the cost differences with your level of comfort on the coverage type chosen.
DP-1- A DP-1 policy stands for Dwelling Policy 1 and is known as an actual cash value (ACV) coverage. ACV covers your dwelling minus any depreciation of the property based on age.
Put simply this covers:
Replacement Cost (RC) – Depreciation = Actual Cash Value (ACV)
In addition to accounting for depreciation, this policy will account for less perils or causes of loss. The basic DP1 policy is a standard fire policy. You will want to ensure that this form covers you with an additional endorsement called Extra Coverage (EC) which covers additional perils such as:
- riot and civil commotion
Finally, you can add a Vandalism and Malicious Mischief (VMM) endorsement. This allows coverage for willful and malicious damage to property.
A lot of investors feel that this policy works best for them especially when they have several dwellings. They want to make sure that their investment is covered in situations of large or total losses but aren’t interested in the full replacement value of the property.
This policy type keeps their premiums down, which in turn helps their bottom line of making a profit on their investment properties. It can be difficult with some carriers to get any forms higher than a DP1 if the home is older and lacks sufficient updates on items such as the roof, heating and air, wiring, and plumbing. In addition, you may find it difficult to find an insurance carrier that will offer anything higher than a DP1 policy on a vacant property due to the risk level.
DP-2- A DP 2 policy offers all of the coverage under a DP 1 policy and also adds coverage for falling objects, plumbing, and weight of ice or snow.
DP-3- A DP 3 policy is considered an all-risk policy and will cover all losses unless they are specifically excluded on the policy.
A typical DP 3 policy will cover the full replacement value of the property. This will require you to increase the coverage to the full replacement value. To have this policy form the home must be relatively newer, as far as year built, or have had all recent updates. This policy costs more, generally due to the higher coverage amount and perils covered.
Please contact us at 704-494-9495 if you have any additional questions as to the coverage types or would like input to help you determine what policy might work best for you.