If you’re a landlord of a rental or investment property, you may have a homeowners policy to protect your property from risks like fire, lightning, vandalism and theft. A dwelling fire policy is similar to homeowners insurance but has one significant difference: A dwelling fire policy is something you should have if your rental or investment property is not your primary residence. A dwelling fire policy may be the coverage you need to insure your rental or investment property from damage if you live elsewhere.
What Does a Dwelling Fire Policy Cover?
Dwelling insurance policies can cover much more than just fire. A dwelling fire policy may be worth considering if you have:
- Vacant homes
- Seasonal homes
- Secondary homes
- Rental properties
- Older homes
What Levels of Protection Are Available?
Dwelling fire coverage comes in three levels of protection: DP-1 is the basic form; DP-2 is the broad form; and DP-3 is the special form. Each form provides a different level of coverage.
DP-1: This is a named perils policy, and it clearly defines what perils are covered. This coverage applies to fire, lightning and internal explosions, such as a stove or water heater. A DP-1 can also provide coverage for other structures on the property, personal property usual to the occupancy dwelling; fair rental value; debris removal; and improvements, alterations and additions.
There is an optional endorsement also available with DP-1 coverage:
Extended coverage, which includes damages due to the following:
- Vandalism or malicious mischief (V&MM)
- Aircraft or vehicles
- Hail or windstorms
- Other explosions
- Riot/civil commotion
- Volcanic eruptions
Claims under a DP-1 policy are settled on an actual cash value (ACV) basis by default. However, you can sometimes opt for a replacement cost value (RCV) policy for an additional cost.
DP-2: This is a named perils policy, and it also covers the same perils as the basic form but also includes:
- Accidental discharge or overflow of water or steam if the building wasn’t vacant for 60 days before the loss
- Burglary damage
- Collapse due to decay, vermin or insect damage
- Electrical damage
- Extended coverage and vandalism and malicious mischief insurance (V&MM)
- Falling objects like trees
- Freezing of pipes
- Glass breakage, if the building wasn’t vacant for 60 or more days before the loss
- Tearing apart, cracking, burning or bulging
- Weight of ice and snow
Unlike the DP-1, the DP-2 settles claims on an RCV basis. DP-2 policy may include loss of rent coverage. If tenants must move while you make repairs covered by covered perils, this coverage reimburses you for rent lost during this time.
DP-3: The most comprehensive dwelling fire coverage available, it’s an “open perils” or “all-risk” policy, which means real property (dwelling and other structures) are covered for all types of damage, except exclusions named in the policy. Damaged personal property (all the items inside the residence and other structures) is only covered on a named perils basis. Damages are covered under an RCV basis by default.
Although exclusions may vary, these are typical inclusions:
- Certain types of water damage
- Earth movement, such as earthquakes
- Governmental action
- Intentional loss
- Laws and ordinances
- Mold, rust, rot and other gradual losses
- Water Damage
DP-1 coverage is ideal for vacant buildings since the other two policies don’t cover these structures. And whether you consider a DP-2 or DP-3 policy depends on variables such as cost, perils covered and ACV versus RCV.
The cost of a dwelling fire policy varies depending on your building and the level of coverage you choose. All three types of dwelling fire policies are advantageous to have, and our agents at RCU Insurance Services can help you determine which one would be most beneficial for your type of property.