DP2 Insurance Policy
The DP2 insurance policy is one of three insurance policies that are most commonly used for rental properties in the United States. This policy is often referred to as the Dwelling Fire Form 2 or DP-2 insurance. It provides adequate coverage for most landlords.
DP2 Policy is Average Protection
The three most common rental insurance policies are the DP1, DP2, and DP3. The DP1 is the most basic landlord insurance policy, providing very bare bones coverage. The DP3 is the most extensive landlord insurance policy, providing the broadest and deepest coverage. The DP 2 is considered a middle-of-the-road landlord insurance policy, providing coverage that fits somewhere between the DP 1 and the DP 3. It is not the most basic insurance, but it's not the best.
The DP-2 is Named Risk Insurance
Landlord insurance policies come in two different categories; name peril policies and open peril policies. The DP1 and DP2 are both named peril policies. This means that all the perils that are insured in the policy are specifically listed in the policy itself. If you have a named perils DP-2 policy, you can go to your policy documents and find the list of the perils that are insured.
Common DP-2 Named Perils
As mentioned above, the DP 2 only covers perils listed in the policy. The following is a list of the most common perils that are included in a DP-2 broad from policy:
- Internal & External Explosion
- Windstorm & Hail
- Civil Commotion
- Aircraft & Vehicles
- Volcanic Eruption
- Vandalism & Malicious Mischief
- Burglary Damage
- Weight of Ice & Snow
- Glass Breakage
- Accidental Discharge or Overflow of Water or Steam
- Falling Objects
- Freezing of Pipes
- Electrical Damage
- Tearing Apart, Cracking, Burning, Bulging
Under the DP-2 policy, if anything happens to the property that is not included on this list, the policy will not insure the damage, and it will not receive coverage.
DP2 Insurance is Replacement Cost
One of the most important distinctions between the DP1 and the DP2 is the distinction between Actual Cash Value (ACV) and Replacement Cost insurance. ACV insurance only insures the policy holder for the damage done to the home, less depreciation. Depending on the age of the construction materials, deducting depreciation from the amount received for a claim can be a serious burden on the insured.
A replacement cost policy, on the other hand, does not deduct depreciation from the amount the insured can receive for a claim. This leads to much more comprehensive and insurance, and insures that landlords won't need to pay considerable amounts of money out-of-pocket. The DP 2 is a replacement cost insurance policy.
Loss of Rents & the DP2 Insurance Policy
One type of coverage that is available (and often included in DP 2 insurance) is Loss of Rents coverage. Loss of Rents coverage is meant to provide the insured with continuing rental income while the home is being repaired due to damage from a covered peril. Without Loss of Rents coverage, if your rental property gets damaged to the point where your renters have to move out while the home gets repaired, you will never collect the rent from those months. Loss of Rents prevents the insured from having no rental income due to home damage.
The DP2 Policy on Vacancy
It is important to note that most DP2 insurance policies will not cover a majority of the perils listed in the policy if the home has been vacant for a period of time. In a typical DP-2, the length of time the home can be vacant and still receive full insurance is either less than 30 or 60 days, depending on who is writing the policy.
Overall, the DP 2 policy is a solid landlord insurance policy and should be considered by landlords when comparing different options for insuring rental properties.