DP-1 Limited Coverage


DP-1 Limited Coverage

What is

DP-1 Limited Coverage


DP1 Policy

A DP1 policy is a type of home insurance that protects rental or vacant homes from nine named perils. It covers the property for its actual cash value, not replacement cost.

What Is A DP1 Policy?

A DP1 policy, also called Dwelling Fire Form 1, is a type of home insurance policy that protects a house from nine named perils – most notably fire. It’s usually used to insure vacant homes but can also be used for rental properties if landlords are on a tight budget.

Because DP1 is a named perils policy, it only covers damage to the home from those nine incidents listed in the policy. Any source of damages that’s not in the policy isn’t covered. As you can imagine, that leaves a lot of room for gaps.

For example, vandalism isn’t covered, and that’s damage vacant homes are especially prone to. If you have a DP1 policy and your home is vandalized, cleaning and repair costs will come out of pocket.

What Do DP1 Policies Cover?

The DP1 insurance policies cover the home for damage from nine named perils:

  • Fire and lightning
  • Internal and external explosions
  • Windstorm
  • Hail
  • Riots
  • Smoke
  • Aircrafts
  • Vehicles
  • Volcanic explosions

If one of these incidents occurs at your property, it’s covered. If an incident not listed happens, it’s not covered. Notably, water damage from appliances or pipes isn’t covered, and that can be a potentially big gap in your coverage.

That’s why it’s so important to read through the policy before you buy a DP1 policy. You don’t want to be stuck with enormous repairs bills that might otherwise be covered if you had a different policy, like a DP3 policy.

In addition to covering the structure of the home, DP1 also covers other structures (like garages, sheds, fences, etc.), personal property, and the fair rental value of the building. It can also cover personal liability and medical payments coverage, but neither of these usually come standard with the policy and must be added on.

DP1 Is an Actual Cash Value Policy

Another limitation of the DP1 policy is in how it pays out claims. This policy is paid on an actual cash value basis. That means depreciation is deducted from your claims payout.

For example, say your roof suffers wind damage and your roof is 12 years old. The total repair cost will be $15,000.

Your insurer will figure out your roof’s replacement cost and deduct its depreciation from your payout. That calculation looks something like this: R × (E - C) / E = ACV.

  • R = replacement cost of the item
  • E = expected life (lifespan) of the item
  • C = current life of the item
  • ACV = actual cash value

So if your roof has 15 more years of life in it, your payout comes to: $15,000 x (15-12) / 15 = $3,000. You’d be paying the other $12,000 out of pocket for the roof damage.

Who Needs a DP1 Policy?

A DP1 policy is for property that’s not occupied by you, the owner. You might consider this policy if you:

  • Own a vacant property.
  • Have a strict budget for rental property.
  • Bought a new house and your old house is vacant pending a sale.
  • Inherited a home that sits empty until probate is complete.
  • Own investment property that’s between tenants (more than 30 days).

Essentially, if a home is going to be vacant for more than 30 days, a DP1 policy might be a good option. It can cover common perils that might not be noticed immediately because there’s no one on the property to see it. While the DP1 is also used by landlords with tenants, it’s not the most robust option. A DP2 or DP3 policy is usually a better fit.

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  • Uninsured motorist coverage (UM) is an add-on coverage for auto policies that will pay for injuries and damages caused by an uninsured driver.
  • Hit-and-run drivers are also considered uninsured motorists.
  • Uninsured motorist coverage usually adds only a small cost to an auto insurance policy but provides beneficial coverage.

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Coverage and availability varies by risk type, state and insurance carrier. Not all coverages are available as specified and there are many variances among carriers.

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