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

The ISO Dwelling Program

The Dwelling Policy is a property-only contract used to insure residential structures that do not qualify for, or do not need, a full Homeowners policy. Common uses tested on the exam: rental (non-owner-occupied) dwellings, seasonal or secondary homes, dwellings with prior losses or poor condition that fail Homeowners underwriting, and mobile homes (via endorsement). Eligible risks are 1-to-4 family dwellings, with permitted incidental occupancies and a limited number of boarders.

The single most important exam fact: the Dwelling Program is property only. There is no personal liability, no medical payments to others, and no theft coverage built in. Those must be added by endorsement (e.g., theft via DP 04 72, liability via a separate Personal Liability Supplement). Contrast this with Homeowners, which bundles property (Section I) and liability (Section II) together.

The three current forms

ISO maintains three dwelling forms. The progression is from narrow to broad on both perils and valuation.

DP-1 Basic Form

DP-1 covers a short list of named perils. As written, the base form covers Fire, Lightning, and Internal Explosion. Extended Coverage (EC) — windstorm, hail, explosion, riot, aircraft, vehicles, smoke, volcanic eruption — and Vandalism & Malicious Mischief (V&MM) are available for additional premium and are almost always added. DP-1 settles dwelling losses on an ACV basis (replacement cost minus depreciation).

DP-2 Broad Form

DP-2 adds more named perils — notably damage from burglars, falling objects, weight of ice/snow/sleet, accidental discharge of water or steam, freezing, and artificially generated electrical current. DP-2 pays on a replacement cost basis for the dwelling and other structures (subject to the coinsurance/80% condition).

DP-3 Special Form

DP-3 is the broadest and most common. The dwelling and other structures are insured on an open-peril ("all-risk") basis — covered unless specifically excluded — while personal property (Coverage C) remains broad named-peril. DP-3 also pays replacement cost on the structure. Remember the asymmetry: open peril on the building, named peril on contents.

Trap: matching peril basis to the right form

Exam writers love to test whether you can match the loss settlement and peril structure to a form. Memorize this chain:

• DP-1 = Basic = ACV + narrowest perils (FLEE: Fire, Lightning, internal Explosion; add EC + V&MM).
• DP-2 = Broad = Replacement Cost + broad named perils.
• DP-3 = Special = Replacement Cost + open peril on the structure, named peril on contents.

A classic distractor claims DP-3 provides open-peril coverage on personal property. It does not — Coverage C is named-peril even under DP-3. Another distractor claims DP-1 pays replacement cost; it pays ACV unless endorsed.

Also note: none of the forms cover flood or earthquake; those require a separate flood policy (NFIP) or earthquake endorsement. Theft is excluded from all three base forms and is a frequent wrong answer.

Why the Dwelling Program exists

Understanding who buys a dwelling policy helps you answer eligibility questions. A landlord who owns a duplex and rents both units cannot use a Homeowners policy, because HO forms require the named insured to occupy the residence. The landlord instead buys a DP-3 on the structure plus Coverage D Fair Rental Value, and adds a Personal Liability Supplement for premises liability.

A second common buyer is the owner of an older home with deferred maintenance, an open prior-loss history, or a value too low to meet a Homeowners minimum. Insurers route those risks to the Dwelling Program — often DP-1 at ACV — because the narrower perils and depreciation-based valuation reduce moral hazard.

Finally, the Dwelling Program is the chassis for mobile-home and dwelling-under-construction writings via endorsement, and it remains the standard residential product in surplus-lines and assigned-risk (FAIR Plan) markets, where Homeowners forms are unavailable. On the exam, if a fact pattern says "rental," "seasonal," "vacant," "under construction," or "declined for Homeowners," think Dwelling Program first.

Eligibility Numbers and the Property-Only Reminder

Nail down the eligibility envelope the way the exam states it. The Dwelling Program writes one-to-four-family residential structures, permits a limited number of roomers or boarders, and allows certain incidental occupancies (a small office or studio) by endorsement. A structure used primarily for business, a building with five or more units, or a true commercial occupancy belongs in a commercial property or BOP program instead, and that routing is a common multiple-choice trap.

Reinforce the property-only nature with the things candidates forget the program excludes by default: theft, personal liability, medical payments to others, flood, and earthquake. Theft and liability can be endorsed on (theft via DP 04 72, liability via the Personal Liability Supplement), but flood always routes to the NFIP and earthquake to its own endorsement or policy. When a fact pattern hands you a Dwelling form and then asks whether a stolen television or a guest's injury is covered, the unendorsed answer is no.

Finally, connect the form choice to the underwriting story. Insurers steer poorer or higher-hazard risks toward DP-1 at ACV because narrow named perils and depreciation reduce moral hazard, while clean owner-occupied risks that simply do not qualify as Homeowners get DP-3 with replacement cost. Matching the form to the risk profile, not just memorizing the chart, is what distinguishes a strong score.