The Dwelling Policy (DP-1, DP-2, DP-3)

What the Dwelling Policy Covers and Who Uses It

The Dwelling Property program insures residential buildings and contents but without the package of personal liability, broad theft, and worldwide personal-property coverage built into a homeowners policy. That narrower scope makes it the right tool for:

• Rental dwellings (one to four families) where the owner does not live on site;
• Seasonal or secondary homes with minimal personal property;
• Dwellings that fail homeowners eligibility — older, lower-value, or not owner-occupied.

Because a landlord's tenant owns the contents, a dwelling policy can be written with little or no personal-property (Coverage C) limit, which keeps premium low.

The Three Dwelling Forms

The program offers three forms of increasing breadth. Knowing which perils and which valuation each uses is core exam material.

• DP-1 (Basic Form): named-peril coverage for a short list (fire, lightning, internal explosion, plus extended-coverage perils such as windstorm, hail, riot, aircraft, vehicles, smoke, vandalism if added). It commonly settles on actual cash value (ACV).
• DP-2 (Broad Form): named-peril but a longer list of perils (adding water discharge, falling objects, weight of ice/snow, freezing, etc.) and settles dwelling losses on replacement cost.
• DP-3 (Special Form): covers the dwelling and other structures on an open-peril (all-risk) basis and pays replacement cost; personal property stays named-peril.

Dwelling form comparison

A frequent trap: candidates assume DP-3 makes everything open-peril. It does not — only Coverage A (dwelling) and B (other structures) are open-peril; Coverage C (personal property) remains insured against named (broad) perils on the DP-3.

Valuation and added endorsements

Valuation tracks the form. The DP-1 typically settles dwelling losses on actual cash value, deducting depreciation, which is why it is cheapest. DP-2 and DP-3 settle the dwelling on replacement cost when the insured carries the required coinsurance percentage. Personal property is generally settled on ACV unless a replacement-cost endorsement is added.

Dwelling policies are highly endorsable, letting an agent tailor a bare form. Common additions include theft coverage (not automatic), personal liability and medical payments (to add a Section II equivalent), vandalism and malicious mischief on a basic form, and ordinance or law to cover the extra cost of meeting current building codes after a covered loss. These endorsements let a landlord build a dwelling policy up toward homeowners-level breadth, one coverage at a time.

Dwelling Coverages A through E

The Dwelling Property forms organize coverage into five parts. Memorize the letter-to-coverage mapping; the exam tests it directly and uses it again on homeowners forms.

• Coverage A — Dwelling: the house itself, attached structures, and materials to repair it. The Coverage A limit anchors the policy; other coverages are often a percentage of it.
• Coverage B — Other Structures: detached garages, sheds, fences — separated from the dwelling by clear space.
• Coverage C — Personal Property: household contents; often small or excluded on landlord policies.
• Coverage D — Fair Rental Value: the rental income lost while a damaged unit is untenantable (an indirect loss).
• Coverage E — Additional Living Expense (ALE): the extra cost for the owner-occupant to live elsewhere during repairs.

Key Differences from Homeowners Policies

The exam repeatedly contrasts dwelling forms with homeowners forms, so fix these distinctions firmly:

• No automatic theft coverage on the basic dwelling form — theft must be added by endorsement; homeowners forms include it.
• No built-in personal liability (Section II). A dwelling policy is property-only unless a personal liability and medical payments endorsement is attached. Homeowners forms include liability automatically.
• Coverage C is optional and often minimal, because landlords insure the building, not the tenant's belongings.
• No off-premises personal-property coverage comparable to the worldwide 10% extension in homeowners forms.

Think of the dwelling policy as the building-focused cousin of homeowners: it can scale from a bare-bones DP-1 on a rental to a DP-3 with endorsed liability that approaches a homeowners policy in breadth, but it always starts from property and adds liability only by choice. This flexibility is exactly why landlords, seasonal-home owners, and applicants who cannot qualify for an HO form rely on it.

Matching the dwelling policy to the applicant

The exam often presents a scenario and asks which dwelling form or endorsement fits. Use a short decision rule:

• Bare rental, cost-sensitive landlord, accepts ACV? → DP-1 basic, possibly with windstorm/vandalism endorsements.
• Wants broader named perils and replacement cost on the structure? → DP-2 broad.
• Wants the widest structural protection and coverage for losses of uncertain cause? → DP-3 special.

Remember the coverage gaps to plug: a landlord who wants protection against tenant or visitor injury claims needs the personal liability endorsement, and one worried about break-ins to a furnished unit needs the theft endorsement. Because none of these are automatic on the basic form, a thorough agent reviews each exposure and quotes the endorsements rather than assuming the base policy is complete. This consultative step is exactly the judgment the licensing exam is checking for.