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

The ISO Dwelling Program

The Dwelling Property Program insures one- to four-family residential risks that do not qualify for, or do not need, a Homeowners policy. Typical uses: rental dwellings (landlord owns, does not occupy), secondary or seasonal homes, dwellings under construction, and risks the owner-occupant insures for fire only. Three ISO forms dominate the national exam: the Basic Form (DP 00 01), the Broad Form (DP 00 02), and the Special Form (DP 00 03).

Unlike a Homeowners policy, no Dwelling form includes liability or medical payments in its base — Section II coverages are added by endorsement (DP 04 11). This is the single most-tested distinction between DP and HO programs.

DP-1 Basic Form (DP 00 01)

The DP-1 is a named-perils form covering only the perils listed. In its stripped base, it covers Fire, Lightning, and Internal Explosion. Extended Coverage (EC) is an optional add-on bringing the WCSHAVVRR perils: Windstorm, Civil commotion, Smoke, Hail, Aircraft, Vehicles, Volcanic eruption, Riot. Vandalism & Malicious Mischief (V&MM) is a separate optional add-on.

DP-1 settles dwelling and other-structures losses on an Actual Cash Value (ACV) basis — replacement cost minus depreciation. It provides no theft coverage even with EC and V&MM endorsed. Tested trap: candidates assume EC "upgrades" DP-1 to open perils — it does not; DP-1 is always named perils.

DP-2 Broad Form (DP 00 02)

The DP-2 is an expanded named-perils form. It includes the DP-1 perils plus EC and V&MM built in, and adds broad perils such as: damage by burglars, falling objects, weight of ice/snow/sleet, accidental discharge of water or steam, freezing of plumbing, sudden tearing/cracking of a heating system, and damage from artificially generated electrical current. DP-2 settles building losses on a Replacement Cost basis (subject to the 80% coinsurance condition). DP-2 also adds Coverage E (Additional Living Expense).

DP-3 Special Form (DP 00 03)

The DP-3 is the broadest dwelling form and the closest parallel to the HO-3. It provides open-perils (special, all-risk except excluded) coverage on Coverage A (Dwelling) and Coverage B (Other Structures), but only named perils (the DP-2 broad list) on Coverage C (Personal Property). Building losses settle on Replacement Cost. This split — open perils on structures, named perils on contents — is identical to the HO-3 architecture and is heavily tested.

Quick Comparison

Memory hook: DP-1 = ACV + named perils; DP-3 = RCV + open perils on the structure. DP-2 sits in the middle (broad named + RCV).

Eligibility and When to Use a DP Instead of an HO

The Dwelling program exists because many residential risks fall outside Homeowners eligibility. An HO policy requires an owner-occupant (with limited exceptions) and bundles Section I property with Section II liability. When the named insured does not occupy the home — a landlord renting to tenants — the HO does not fit, and a Dwelling form is the correct product.

Common DP candidates the exam likes to test:

• Tenant-occupied rental dwellings — landlord insures the structure (Coverages A, B, D); tenants buy their own contents coverage.
• Seasonal or secondary homes with intermittent occupancy.
• Dwellings the insured wants covered for fire only (minimum DP-1 with FLE).
• Homes in older condition or substandard risks that fail HO underwriting but still need structural coverage.
• One- to four-family dwellings generally; five or more units move to a commercial program.

Loss Settlement Recap and the Coinsurance Trigger

Loss settlement is the most exam-critical attribute of each form. The DP-1 always pays ACV (replacement cost minus depreciation), so the insured absorbs depreciation on every building loss. The DP-2 and DP-3 pay Replacement Cost on the building, but only if the insured carries at least 80% of the dwelling's replacement cost; carry less and the coinsurance penalty in Section 3.2 reduces the recovery. Personal property under any form settles on ACV unless a personal-property replacement-cost endorsement is added.

A frequent distractor: the exam pairs "DP-1" with "replacement cost" — wrong, DP-1 is always ACV. Another: "DP-3 covers contents on an open-perils basis" — wrong, DP-3 is open perils only on the structure (A and B); contents (C) remain broad named perils.

Eligibility and What the Dwelling Program Covers

The Dwelling Property (DP) program insures residential buildings that do not qualify for or do not need a homeowners policy: rental dwellings, seasonal homes, dwellings under construction, and properties owned by someone who does not live there. Eligible dwellings are typically 1 to 4 family units. Unlike homeowners, dwelling forms contain no liability or medical payments coverage in the base form, no theft in DP-1, and are commonly used for landlord and non-owner-occupied risks where rental value, not loss of use, is the relevant time-element coverage.

Comparing DP-1, DP-2, and DP-3 by Trigger and Valuation

The three forms differ on perils and valuation. DP-1 (Basic) is a named-peril form covering fire, lightning, and internal explosion, with extended coverage perils (windstorm, hail, riot, aircraft, vehicles, smoke) and vandalism available by endorsement; DP-1 settles losses on an actual cash value basis.

DP-2 (Broad) is a broader named-peril form adding the broad perils and pays replacement cost on the building. DP-3 (Special) insures the dwelling and other structures on an open-peril basis while contents remain named-peril, and pays replacement cost on the structure, making it the broadest and most popular dwelling form.

Builders Risk and Theft Considerations

A dwelling under construction is written with a Dwelling Under Construction provision, where the limit adjusts to the value as it rises and the coinsurance requirement is relaxed during the build. Theft of personal property is not covered by the base dwelling forms and must be added by a Broad or Limited theft endorsement; vandalism likewise requires endorsement and is suspended when the dwelling is vacant beyond the policy's stated period, mirroring the broader property vacancy rules.