3.1 Dwelling Policy Forms DP-1, DP-2, DP-3

Why the Dwelling Program Exists

The ISO Dwelling Property Program insures one-to-four family residences that do not qualify for, or do not need, a Homeowners policy. Typical accounts include rental dwellings, seasonal homes, dwellings under construction, and homes that fail Homeowners underwriting because of older roofs or prior losses.

Because the program is monoline property, the producer must add liability separately, unlike the package Homeowners forms. The program also accepts dwellings with incidental occupancies, such as a home office or a one-family rental, that a Homeowners form might decline. Three forms make up the program, and each carries an ISO edition number you should recognize on the exam: DP 00 01, DP 00 02, and DP 00 03.

The Three Forms at a Glance

Coverage broadens from top to bottom. DP-1 is the narrowest and cheapest; DP-3 is the broadest and the closest dwelling parallel to the HO-3 Homeowners form.

DP-1: Basic Form

In its core state the DP-1 insures only fire, lightning, and internal explosion. The remaining common perils are added by attaching the Extended Coverage (EC) group and Vandalism & Malicious Mischief (V&MM):

• EC perils: Windstorm/hail, Civil commotion/Riot, Smoke, Aircraft, Vehicles, Volcanic eruption, Explosion
• V&MM must be added separately

Key DP-1 facts that show up on the exam:

• Pays on Actual Cash Value (ACV) = replacement cost minus depreciation
• No theft coverage, even after EC and V&MM are added
• Windstorm covers interior damage only after wind first creates an opening in the roof or wall

Exam tip: The two facts tested most about DP-1 are "no theft" and "ACV settlement."

DP-2: Broad Form

The DP-2 (DP 00 02) is a broad named-perils form. It automatically includes EC and V&MM, adds theft, and brings in additional broad perils such as falling objects; weight of ice, snow, or sleet; accidental discharge or overflow of water from a plumbing system; freezing of plumbing; and sudden tearing apart of a steam or hot-water heating system. It settles the dwelling on Replacement Cost subject to the 80% rule.

The DP-2 is the right fit for an owner who wants meaningful contents and theft protection but still does not need the full open-perils breadth of the DP-3.

DP-3: Special Form

The DP-3 (DP 00 03) insures the dwelling and other structures on an open-perils basis: any direct physical loss is covered unless the policy specifically excludes it, which shifts the burden of proof to the insurer to show an exclusion applies. Personal property, however, remains on the broad named-perils list.

This split, open on the building and named on contents, is the single most tested DP-3 distinction. The DP-3 settles the dwelling on Replacement Cost and is the closest dwelling parallel to the HO-3 Homeowners form, making it the most common choice for owner-occupied dwellings written outside the Homeowners program.

Replacement Cost and the 80% Rule

DP-2 and DP-3 pay replacement cost on the dwelling only if the insured carries at least 80% of the dwelling's full replacement value at the time of loss. If coverage falls below 80%, the larger of ACV or the coinsurance-style formula applies:

Recovery = (Carried / 0.80 x RC value) x Loss, then subtract the deductible

Worked example: A home costs $300,000 to replace. The 80% requirement is $240,000. The owner insures it for $180,000 and has a $1,000 deductible partial loss of $40,000.

• Recovery factor = 180,000 / 240,000 = 0.75
• 0.75 x 40,000 = $30,000, minus $1,000 deductible = $29,000 paid

Underinsuring cost this owner $11,000.

Eligibility and Positioning of the Dwelling Program

The Dwelling Property program (DP-1/2/3) exists for residences that do not qualify for or do not need a Homeowners policy. Typical uses:

• Rental (non-owner-occupied) dwellings — landlords insuring property they rent out.
• Seasonal or secondary homes.
• Dwellings of 1–4 families where the owner wants property-only coverage.
• Risks that fail HO underwriting (older homes, vacant, higher-hazard) and may go to a FAIR Plan on a dwelling form.

Unlike the Homeowners form, the dwelling program is modular: it does not automatically include theft, liability, or medical payments — these are added by endorsement. This makes it flexible for investor and specialty exposures.

Reading the Three Forms as a Progression

Think of DP-1, DP-2, and DP-3 as ascending tiers:

The DP-3 is the workhorse for rental dwellings because it mirrors the open-peril structure coverage of an HO-3 while leaving out the owner-occupant features. Trap: candidates confuse DP-3 (open peril on the building) with the contents basis, which stays named peril even on the DP-3.