Key Takeaways
- Dwelling policies are designed for properties that don't qualify for standard homeowners insurance — rentals, vacant homes, and secondary residences
- Unlike homeowners policies, dwelling policies provide NO personal liability coverage — only property protection
- There are three dwelling forms: DP-1 (Basic), DP-2 (Broad), and DP-3 (Special) — each offering progressively more coverage
- Dwelling policies follow the property, not the person — coverage applies to the described dwelling regardless of who lives there
- Approximately 15% of residential properties in the U.S. are covered by dwelling policies rather than homeowners policies
Dwelling Policy Overview
Dwelling policies provide property coverage for residential buildings that don't qualify for — or don't need — a standard homeowners policy. Understanding when to use a dwelling policy versus a homeowners policy is essential.
What Is a Dwelling Policy?
Definition: A property insurance policy designed to cover residential structures and their contents, primarily for:
- Rental properties (landlord-owned)
- Vacant or unoccupied homes
- Secondary/seasonal residences
- Properties under construction or renovation
- Homes that don't meet homeowners eligibility requirements
Dwelling Policy vs. Homeowners Policy
| Feature | Dwelling Policy | Homeowners Policy |
|---|---|---|
| Primary use | Rentals, secondary homes, vacant | Owner-occupied primary residence |
| Personal liability | NOT included | Included |
| Medical payments | NOT included | Included |
| Personal property | Optional (tenant may need renter's) | Included |
| Additional living expense | Fair Rental Value (landlords) | Additional Living Expense (ALE) |
| Who it covers | The building/property | The person/family |
Key Difference: Dwelling policies protect the PROPERTY. Homeowners policies protect both the property AND the person living there.
When to Use a Dwelling Policy
1. Rental Properties (Landlords)
The property owner needs dwelling coverage because:
- They don't live in the property
- They need coverage for the building structure
- Tenants should have their own renter's policy for contents and liability
- Fair Rental Value coverage replaces lost rent if property becomes uninhabitable
2. Vacant or Unoccupied Homes
Standard homeowners policies often:
- Exclude coverage for homes vacant more than 30-60 days
- Require notification of vacancy
- Charge additional premium for vacancy
Dwelling policies can be written specifically for vacant properties.
3. Secondary/Seasonal Residences
- Vacation homes
- Lake houses/cabins
- Properties only occupied part of the year
4. Homes Under Construction
- New construction before occupancy
- Major renovations making home temporarily uninhabitable
5. Properties Not Meeting Homeowners Standards
- Older homes with outdated systems
- Homes failing underwriting guidelines
- Properties in high-risk areas
Dwelling Policy Structure
Dwelling policies use a coverage structure similar to homeowners policies:
| Coverage | What It Protects |
|---|---|
| Coverage A - Dwelling | The main residential structure |
| Coverage B - Other Structures | Detached buildings (garage, shed, fence) |
| Coverage C - Personal Property | Contents (optional — often for landlord's belongings) |
| Coverage D - Fair Rental Value | Lost rental income if property is uninhabitable |
| Coverage E - Additional Living Expense | Only if owner-occupant (rare for dwelling policies) |
Coverage Limits Relationship
Standard percentage relationships:
| Coverage | % of Coverage A |
|---|---|
| Coverage A (Dwelling) | 100% (base) |
| Coverage B (Other Structures) | 10% of A |
| Coverage C (Personal Property) | Optional — varies |
| Coverage D (Fair Rental Value) | 10% of A (or 20% for DP-3) |
Example:
- Coverage A: $200,000
- Coverage B: $20,000 (10%)
- Coverage D: $20,000-$40,000 (10-20%)
Key Terminology
Vacant vs. Unoccupied
| Term | Definition | Insurance Implications |
|---|---|---|
| Vacant | Property is empty — no furniture, no people, not in use | Higher risk; coverage restrictions apply |
| Unoccupied | Furnished but temporarily not lived in (vacation, hospitalization) | Less risk than vacant; fewer restrictions |
Example:
- House with furniture, owner in hospital = Unoccupied
- Empty house for sale, no contents = Vacant
Fair Rental Value vs. Additional Living Expense
| Coverage | Who Uses It | What It Pays |
|---|---|---|
| Fair Rental Value | Landlords | Lost rent while property is uninhabitable |
| Additional Living Expense | Owner-occupants | Extra costs to live elsewhere (hotel, meals) |
Industry Context
- 15% of residential properties use dwelling policies
- Growing segment due to increase in rental properties
- Common in investment real estate portfolios
- Short-term rental properties (Airbnb, VRBO) often need specialized dwelling coverage
Which of the following is NOT covered by a standard dwelling policy?
A property owner has an investment property they rent to tenants. What type of policy should they purchase?
A home has furniture inside but the owner has been in the hospital for 3 months. The home is considered:
3.2 Dwelling Policy Forms (DP-1, DP-2, DP-3)
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