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

Why a Dwelling Policy Instead of Homeowners

The ISO Dwelling Program exists for one- to four-family residential risks that do not fit a Homeowners (HO) policy. The most common reason is that the named insured does not occupy the dwelling — rental houses, seasonal cottages, and secondary homes. Other triggers include incidental commercial occupancy, dwellings under construction, and older homes whose value or condition keeps them out of the HO program.

A dwelling policy is monoline property. It contains no built-in liability, no medical payments, and no theft on the narrowest form. Producers add those features by endorsement when the customer needs them. This is the single most heavily tested distinction between DP and HO: HO is a package, DP is property only.

The Three Forms at a Glance

ISO publishes three dwelling forms. Coverage breadth and premium rise as you move down the table; none of the three includes liability in its base form.

DP-1 Basic Form (DP 00 01)

The DP-1 is the narrowest and least expensive form. In its core state it insures only fire, lightning, and internal explosion. The other familiar perils are added as optional groups:

• Extended Coverage (EC): windstorm/hail, civil commotion/riot, smoke, aircraft, vehicles, volcanic eruption, explosion
• Vandalism & Malicious Mischief (V&MM): added separately from EC

Critical DP-1 facts the exam repeats: it settles losses on Actual Cash Value (replacement cost minus depreciation), it provides no theft coverage even with EC and V&MM, and windstorm covers interior damage only if wind first makes an opening in the building.

DP-2 Broad Form (DP 00 02)

The DP-2 is an expanded named-perils form. It includes the DP-1/EC perils plus broad perils such as falling objects; weight of ice, snow, or sleet; accidental discharge or overflow of water or steam; tearing apart/cracking/burning of a heating or AC system; freezing of plumbing; and damage from artificially generated electrical current. It upgrades building loss settlement to replacement cost (subject to the 80% coinsurance condition) and adds theft.

DP-3 Special Form (DP 00 03)

The DP-3 is the broadest and most frequently sold dwelling form. The dwelling and other structures are insured on an open-perils (all-risk) basis — every cause of loss is covered unless specifically excluded — while Coverage C personal property remains named perils using the DP-2 broad list.

DP-3 vs. HO-3

Named-Insured and Insurable Interest

Every dwelling policy is written for a specific named insured who must have an insurable interest in the property at the time of loss. On a rental written for an investor, the landlord is the named insured and the tenant has no rights under the policy — the tenant who wants coverage on furniture and personal liability must buy a tenant (renters) policy separately. This separation is a recurring exam scenario: a tenant's fire that damages the building is paid to the landlord under the dwelling policy, but the tenant's own ruined belongings are not, because the tenant is not insured under the owner's contract.

A mortgagee also has an insurable interest, which is why dwelling policies use a mortgage clause (covered in section 3.3). The dollar amount payable is still capped by the policy limits and the actual loss; insurable interest determines who may collect, not how much.

Choosing the Right Form

Producers match the form to the customer's risk tolerance and budget. A bare-bones rental in a low-value area where the owner wants minimum cost may take a DP-1 with EC and V&MM and accept ACV settlement and no theft. A typical single-family rental usually warrants a DP-3 for the broad open-perils protection on the building, with a Personal Liability endorsement so the landlord has premises liability for tenant and guest injuries. The DP-2 sits in between and is chosen when broad named-perils breadth and replacement cost are desired but open-perils pricing is not justified.

Remember that the perils difference is only half the comparison; the loss-settlement basis is the other half. DP-1 is ACV; DP-2 and DP-3 settle the building at replacement cost when the coinsurance condition is met. A candidate who can state both the peril basis and the settlement basis for each form has mastered the section.

Exam tip: "DP-1 = ACV and no theft," "DP-2 = broad named perils + replacement cost," and "DP-3 = open perils on building, named on contents" are the three facts tested most often about the dwelling forms.