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

The Dwelling Program at a Glance

The ISO Dwelling Property program insures one-to-four family dwellings, including homes that do not qualify for a Homeowners policy: rentals, secondary residences, dwellings under construction, and risks the owner does not occupy. Unlike a Homeowners policy, the base dwelling form is a property-only contract — there is no built-in personal liability or medical payments coverage. Those must be added by endorsement.

There are three forms. Coverage breadth and premium increase as you move from Basic to Broad to Special. The exam expects you to recognize each by both name and ISO form number.

The Three Forms

Key trap: DP-3 is open perils on the building and other structures only. Personal property (Coverage C) is always written on a named-perils basis even under the Special form. Candidates routinely miss this distinction because Homeowners HO-3 follows the same pattern.

Loss Settlement: ACV vs Replacement Cost

The single most-tested mechanical difference is loss settlement on the dwelling.

• DP-1 pays Actual Cash Value — replacement cost minus depreciation. A 20-year-old roof with a 25% remaining useful life and a $12,000 replacement cost settles at roughly $3,000 ACV before deductible.
• DP-2 and DP-3 pay replacement cost on Coverage A and B, provided the insured carries at least 80% of replacement cost at the time of loss (the coinsurance condition).

Worked example: A dwelling has a replacement cost of $300,000. The 80% requirement is $240,000. The insured carries $200,000. The recovery factor is $200,000 / $240,000 = 0.8333. On a $60,000 partial loss, the insurer pays 0.8333 × $60,000 = $50,000, minus deductible. The remaining $10,000 is the coinsurance penalty borne by the insured.

Extended Coverage and the Standard Fire Policy

DP-1 in its stripped base form covers only fire, lightning, and internal explosion. The familiar Extended Coverage (EC) perils — Windstorm or Hail, Explosion, Riot or Civil Commotion, Aircraft, Vehicles, Smoke, and Volcanic Eruption — are added for an additional premium. Vandalism and Malicious Mischief (V&MM) is a separate option on DP-1 and is suspended once the dwelling is vacant beyond 60 days.

This layered structure traces back to the Standard Fire Policy (SFP), the statutory base policy the dwelling forms are built on. The SFP establishes the 165-line wording, the concealment-or-fraud condition, and the duties after loss that flow through to all three forms. When you see references to the "165-line policy," recognize it as the SFP foundation beneath DP-1, DP-2, and DP-3.

Eligibility and Why the Dwelling Program Exists

The dwelling program fills the gap left by Homeowners eligibility rules. A Homeowners policy generally requires an owner-occupied one-to-four family residence. The dwelling forms instead accept:

• Tenant-occupied rentals the owner does not live in
• Dwellings with incidental occupancies (a small office or studio)
• Secondary or seasonal homes unoccupied for long stretches
• Dwellings in poor condition or with prior losses that Homeowners underwriting would decline
• Homes under construction not yet ready for a Homeowners form

Because the program is property-only, an agent insuring an owner-occupant on a dwelling form must remember to add liability separately — a recurring exam scenario.

DP-2 vs DP-3 — The Broad/Special Line

Where DP-1 is bare-bones, DP-2 (Broad) lists a fuller named-perils slate: the EC perils plus falling objects; weight of ice, snow, or sleet; accidental discharge of water or steam; sudden tearing or bulging of a heating/AC system; freezing of plumbing; and sudden artificially generated electrical damage. DP-2 also adds theft and pays replacement cost on the building.

DP-3 (Special) flips Coverage A and B to open perils: every cause of loss is covered unless specifically excluded. This shifts the burden of proof — the insurer must point to an exclusion rather than the insured proving a named peril. Coverage C stays the DP-2 broad named-perils list. Premium and protection peak here, which is why DP-3 is the form of choice for owner-occupied dwellings that nonetheless need a dwelling rather than Homeowners policy.

When and Why a Dwelling Policy Is Used

The Dwelling Policy (DP) program insures residential dwellings of one to four families and is the right tool when a Homeowners policy will not fit. Typical uses include rental (non-owner-occupied) dwellings, dwellings where the owner wants only property coverage without the mandatory liability of a Homeowners form, seasonal or secondary homes, and dwellings that fail Homeowners eligibility because of condition, value, or occupancy. Unlike the Homeowners program, the DP does not automatically include liability (Coverage L) or medical payments; those are added by endorsement, which is a frequent exam distinction.

The three forms scale in breadth and cost. DP-1 (Basic) is a named-peril form whose base perils are fire, lightning, and internal explosion, with Extended Coverage (EC) perils (windstorm, hail, explosion, riot, aircraft, vehicles, smoke, volcanic eruption) and vandalism added for extra premium. DP-1 commonly settles losses at actual cash value, not replacement cost, which is a defining limitation. DP-2 (Broad) broadens the named perils and pays replacement cost on the building. DP-3 (Special) provides open-peril coverage on the dwelling and other structures.

The loss-settlement difference drives many questions: DP-1 pays ACV, while DP-2 and DP-3 pay replacement cost on Coverage A subject to the 80 percent coinsurance requirement. Because rental property owners often want only fire-and-EC coverage at the lowest cost, DP-1 remains common despite its ACV limitation.

Worked scenario: an investor owns a single-family rental and wants inexpensive coverage against fire and storm only. A DP-1 with EC and vandalism added fits, settling losses at ACV. If the same investor wanted full open-peril protection and replacement cost, the agent would write a DP-3 instead. Matching the owner's occupancy and coverage goals to the correct DP form is the central dwelling-forms skill.

Key Takeaways

The Dwelling Policy insures one-to-four-family residences and is used for rentals, seasonal homes, and dwellings ineligible for Homeowners; it does not automatically include liability. DP-1 is named-peril (fire/lightning/internal explosion, with EC and vandalism added) and typically pays ACV; DP-2 broadens perils and pays replacement cost; DP-3 is open-peril on the dwelling. Coverage A on DP-2/DP-3 is subject to 80 percent coinsurance, while DP-1's ACV settlement is its defining limit.