Dwelling Policy Forms: DP-1, DP-2, DP-3
Key Takeaways
- The dwelling program (DP-1, DP-2, DP-3) insures residential property that does not need a full homeowners policy, such as rentals and seasonal homes.
- DP-1 is named-peril at ACV; DP-2 is broad named-peril at replacement cost; DP-3 is open-peril on the structure at replacement cost.
- Standard dwelling forms omit automatic theft coverage and personal liability, which can be added by endorsement.
- An owner-occupant who needs theft and liability is usually better served by a homeowners form than by endorsing a dwelling policy.
The Dwelling Program
The dwelling policy (DP) insures residential property that does not qualify for, or does not need, a full homeowners policy: rental dwellings, seasonal homes, homes of lower value, or properties where the owner wants property coverage without the package liability of a homeowners form. The ISO dwelling program offers three forms of ascending breadth, and the exam expects you to rank them and know how each handles covered causes of loss and valuation.
| Form | Covered causes | Loss settlement on dwelling |
|---|---|---|
| DP-1 (Basic) | Named peril, short list (fire, lightning, internal explosion; EC and V&MM optional) | Actual cash value |
| DP-2 (Broad) | Named peril, expanded list | Replacement cost (with conditions) |
| DP-3 (Special) | Open peril on dwelling/other structures; named peril on contents | Replacement cost (with conditions) |
DP-1 Basic Form
The DP-1 is the narrowest and cheapest. In its base form it covers only fire, lightning, and internal explosion, with extended coverage (EC) perils (windstorm, hail, explosion, riot, aircraft, vehicles, smoke) and vandalism and malicious mischief (V&MM) added for additional premium. The DP-1 settles dwelling losses at actual cash value, so depreciation is deducted. It is often used for older or lower-value rental property where replacement cost coverage is unavailable or uneconomic.
DP-2 Broad and DP-3 Special
The DP-2 (Broad Form) covers a longer named-peril list, including falling objects; weight of ice, snow, and sleet; accidental water discharge; freezing; and electrical damage. It settles the dwelling on a replacement-cost basis subject to the coinsurance condition. The DP-3 (Special Form) is the broadest: it provides open-peril coverage on the dwelling and other structures, covering any direct physical loss except exclusions, while contents remain on a named-peril basis.
The DP-3 is the most common modern dwelling form because open-peril building coverage closely tracks homeowners protection without bundling the personal liability and theft coverages a homeowners policy includes.
What the Dwelling Program Omits
A key exam point: the standard dwelling forms do not automatically include theft coverage or personal liability, both of which are core to homeowners policies. Theft can be added by endorsement, and liability can be added through a separate personal liability endorsement or supplement. This is why a dwelling policy fits a landlord, who needs building coverage and rental-income protection but insures the structure rather than a resident's belongings, while an owner-occupant typically prefers a homeowners form.
Choosing a Dwelling Form
When a scenario asks which dwelling form fits, reason from breadth and value. If the property is older or lower value and the owner wants minimum cost, the DP-1 at ACV fits. If the owner wants replacement cost and broad named perils, the DP-2 fits. If the owner wants the widest open-peril protection on the structure, the DP-3 fits. And if the scenario involves a resident owner who also needs theft and liability, the right answer is usually to move to a homeowners form rather than to bolt endorsements onto a dwelling policy.
Recognizing the boundary between the dwelling and homeowners programs is the single most tested idea in this part of the exam.
Which dwelling form provides open-peril coverage on the dwelling and other structures while covering contents on a named-peril basis?
A landlord insures a rental house and asks why the standard dwelling policy does not cover the tenant's stolen belongings. What is the best explanation?
Choosing Among the Dwelling Forms
The three dwelling forms ascend in breadth and cost, so match the form to the owner's priorities. The DP-1 suits an owner who wants minimum cost on older or lower-value property and accepts named-peril coverage settled at actual cash value. The DP-2 suits an owner who wants replacement cost and a broader named-peril list. The DP-3 suits an owner who wants the widest open-peril protection on the structure. The classic exam move offers a DP-1 when the facts call for replacement cost, testing whether you connect the form to its settlement basis.
Remember what the program omits. Standard dwelling forms do not automatically include theft or personal liability, both of which can be endorsed. This is why a landlord, who needs building and rental-income coverage but not a resident's belongings, fits the dwelling program, while an owner-occupant who needs theft and liability is usually better served by a homeowners form.
| Owner situation | Best dwelling fit |
|---|---|
| Older/low-value rental, minimum cost | DP-1 (ACV) |
| Wants replacement cost, broad perils | DP-2 |
| Wants open-peril on the structure | DP-3 |
| Owner-occupant needing theft/liability | Move to homeowners |
A frequent exam scenario describes a non-owner-occupied rental and asks for the right product. Because the dwelling forms insure the owner's structure and interest rather than a tenant's property, the landlord buys a dwelling policy (often with fair-rental-value coverage) while the tenant buys renters insurance. Recognizing this division of responsibility, and that endorsing theft and liability onto a dwelling policy is usually less efficient than a homeowners form for an owner-occupant, is the boundary the exam tests most often in the dwelling section.
When a scenario gives a dwelling and asks for the right form, reason from breadth and settlement: DP-1 (named peril, ACV) for older or low-value property at minimum cost, DP-2 (broad named peril, replacement cost) for wider coverage, and DP-3 (open peril on the structure) for the broadest protection. The classic trap offers a DP-1 when the facts call for replacement cost.
Remember the program's omissions, no automatic theft and no automatic liability, which is why a landlord fits the dwelling program (owner's structure, fair rental value) while an owner-occupant needing theft and liability is usually better served by a homeowners form.