Coverage for Rental or Investment Properties

If you own rental or investment properties, you must safeguard them from a variety of threats, including fire, lightning, vandalism, and theft. If your primary house is on a rental or investment property, a homeowners policy would protect you from many of the possible dangers. But what if you live somewhere else? A dwelling fire policy may be the sort of coverage you want to protect your rental or investment property from harm. INSURICA is here to help you with your dwelling fire coverage options.

Dwelling Fire Policy Basics

A dwelling fire policy, despite its name, may cover your property from much more than just fire damage.

The coverage is fairly similar to that of a homeowners insurance, with one major distinction: a dwelling fire policy is designed for a landlord who does not use the property as his or her primary residence. A dwelling fire policy is a smart decision if you need to insure a rental or investment property but not the personal stuff within.

To be eligible for a dwelling fire policy, the property must be one of the following:

• Single family home
• One- to four-person family dwelling
• Older home worth $50,000 or less
• Vacation, seasonal or second home

Differentiating the Dwelling Policy Types

Just like homeowners policies, there are several different types of dwelling fire coverage. DP-1 is known as the basic form, DP-2 is known as the broad form and DP-3 is known as the special form. Each provides a significantly different level of coverage.

DP-1: Basic Form

The basic form is a “named perils” policy (that is, the policy explicitly names what perils are covered) and covers losses due to:

• Fire
• Lightning
• Internal explosion, such as a stove or water heater

There are two optional endorsements available with DP-1 coverage:

• Vandalism or malicious mischief (V&MM)
• Extended coverage, which includes damages due to the following:
  • Hail or windstorms
  • Other explosions
  • Riot/civil commotion
  • Aircraft or vehicles
  • Smoke
  • Volcanic eruptions

Claims under a DP-1 policy are settled on an actual cash value (ACV) basis by default—however, you can sometimes opt for a replacement cost value (RCV) policy for an additional cost.

The DP-1 form is usually the form of choice for vacant homes or properties, and it may be the only option for these dwellings.

DP-2: Broad Form

The broad form is also a named perils policy and covers the same perils as the basic form, with certain additions:

• Extended coverage and V&MM coverage are automatically included
• Burglary damage
• Weight of ice and snow
• Glass breakage (if the building was not vacant for 60 or more days before a loss)
• Accidental discharge or overflow of water or steam (if the building was not vacant for 60 days before a loss)
• Falling objects (such as trees)
• Freezing of pipes
• Electrical damage
• Collapse (due to decay, vermin or insect damage, or other perils)
• Tearing apart, cracking, burning, bulging

Unlike the DP-1 form, the DP-2 form settles claims on a RCV basis.

Loss of rent coverage may be included with a DP-2 policy. If tenants are forced to move out while the landlord repairs the dwelling due to damage caused by a named peril, this coverage would reimburse the landlord for rent lost during the process.

DP-3: Special Form

The DP-3 form is the most comprehensive dwelling fire coverage available. It is an “open peril” or “all risk” policy, which means real property (dwelling and other structures) will be covered for all types of damage, except those exclusions named in the policy. However, damaged personal property (all the items inside the dwelling and other structures) is covered on a named perils basis.

DP-3 form exclusions vary, but will typically include some or all the following:

• War
• Water damage
• Laws and ordinances
• Neglect
• Intentional loss
• Mold, rust, rot and other gradual losses
• Certain types of water damage
• Earth movement, such as earthquakes
• Governmental action

Damages are covered under a RCV basis by default.

Which Form is Right for You?

All three dwelling fire policy forms can be valuable, depending on what kind of property is being insured.

DP-1 coverage is ideal for vacant buildings, as the other two policies will not cover such structures. It only offers the very basic coverage to a landlord.

Whether you choose a DP-2 or DP-3 policy depends on several things—cost, perils covered and ACV versus RCV—but a cost-benefit analysis should always be conducted before purchasing a dwelling fire policy. We can help you do just that—contact INSURICA today to learn more about what type of dwelling fire policy is right for you.

This Coverage Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2014 Zywave, Inc. All rights reserved.