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

The Dwelling Policy Program

The ISO Dwelling Property program insures residential structures that do not qualify for a Homeowners policy. Typical insureds include rental (non-owner-occupied) dwellings, seasonal homes, dwellings with more than two boarders, and properties where the owner wants property coverage without the package liability the HO program bundles in. The three core forms in current use are DP-1 (Basic), DP-2 (Broad), and DP-3 (Special). The most-tested edition is the DP 00 02/03 (12 11) ISO series, though states adopt slightly different editions.

A dwelling policy is a monoline property contract. It does not automatically include liability, medical payments, or theft. Those must be added by endorsement, which is a frequent exam distinction from the Homeowners forms.

Eligibility matters on the exam. A dwelling form can insure a one- to four-family dwelling, including a dwelling under construction, and can be issued to an owner-occupant or to an investor who never lives there. By contrast, a Homeowners form generally requires owner-occupancy and is reserved for risks that meet underwriting standards the dwelling program does not impose. When a candidate sees a fact pattern with a landlord, a vacant seasonal cabin, or a substandard older home, the dwelling program is almost always the intended answer.

DP-1 Basic Form

DP-1 is the only dwelling form rated on the named-peril, actual cash value (ACV) basis by default. Its base perils are fire, lightning, and internal explosion. The Extended Coverage (EC) group — windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, and volcanic eruption — is added for an additional premium, and Vandalism and Malicious Mischief (V&MM) can then be layered on top.

Key DP-1 traps:

• DP-1 settles losses at ACV, not replacement cost, unless a replacement-cost endorsement is attached.
• DP-1 has no Coverage E (Additional Living Expense); instead it offers a limited Fair Rental Value allowance, often 10% of Coverage A drawn from within the dwelling limit.
• DP-1 does not cover theft, weight of ice/snow, or collapse.

DP-2 Broad and DP-3 Special

DP-2 (Broad Form) is a named-peril form covering the DP-1 perils plus a broad list: burglar damage, falling objects, weight of ice/snow/sleet, accidental discharge of water/steam, freezing, sudden tearing/cracking of a heating system, and damage from artificially generated electrical current. DP-2 settles dwelling and other structures at replacement cost (subject to the 80% coinsurance condition) and personal property at ACV.

DP-3 (Special Form) is the premium form. It insures Coverage A (Dwelling) and Coverage B (Other Structures) on an open-peril ("all-risk") basis — covered unless specifically excluded — while Coverage C (Personal Property) stays named-peril (the DP-2 broad list). DP-3 also uses replacement cost on the structure subject to the 80% coinsurance requirement. This split — open-peril structure, named-peril contents — is the single most-tested DP-3 fact.

A helpful way to remember the progression: DP-1 answers "is the cause on the short list?", DP-2 answers "is the cause on the long list?", and DP-3 reverses the question to "is the cause excluded?". Because open-peril coverage shifts the burden of proof onto the insurer, DP-3 commands the highest premium and is what most lenders require for a financed rental property. When the named-peril forms apply, the insured must prove the loss was caused by a listed peril; under DP-3's open-peril structure coverage, the insurer must prove an exclusion applies to deny the claim.

Form Comparison Table

Remember: in all dwelling forms, personal property is settled at ACV — replacement cost on contents requires a separate endorsement.

Who Buys a Dwelling Policy and Why It Is Not a Homeowners Policy

The Dwelling Property program (DP-1/2/3) insures residential structures but, unlike the homeowners program, includes no Section II liability or medical payments and no automatic theft coverage in the base DP-1. It is the right product for non-owner-occupied rentals, secondary/seasonal homes, dwellings that fail homeowners eligibility, and landlord risks. Liability can be added by endorsement, and theft can be added to DP-2/DP-3, but on the exam the default assumption is that a bare dwelling form is property-only.

Loss Settlement by Form

The forms also differ on how losses are valued. DP-1 settles the dwelling on ACV with no replacement-cost option in the unendorsed form. DP-2 and DP-3 settle the dwelling on a replacement-cost basis subject to the 80% insure-to-value condition. All three settle personal property on ACV unless a replacement-cost endorsement is added. DP-1's Extended Coverage (EC) perils require an additional premium and are not automatic, while DP-2/DP-3 build broad or open perils into the form — a distinction that drives many "which form pays?" questions.