Quick Overview 🏠
A dwelling policy is the go-to form for many landlords and certain residential rental situations. It focuses on protecting the physical building — the walls and roof — and is sold in three main forms: DP‑1 (Basic), DP‑2 (Broad), and DP‑3 (Special).
DP‑1 — Basic (Think “Bob” and Black Coffee) ☕
DP‑1 is the most limited dwelling form. It only automatically covers losses caused by fire, lightning, and internal explosion. The insured may add extended coverage perils (ECP) — sometimes remembered by the mnemonic WHARVES — and then, if ECP is in place, can add VMM (vandalism and malicious mischief).
- DP‑1 valuation for Coverage A (dwelling) is actual cash value (ACV) — not replacement cost.
- No tree coverage on DP‑1.
- VMM can only be added if ECP is purchased first (ECP = option 1; ECP + VMM = option 2).
DP‑2 — Broad (More Coverage, Like a Latte) ☕️
DP‑2 adds many named perils beyond DP‑1. It includes everything DP‑1 does plus a broader list such as burglary, bursting of heating systems, weight of ice/snow/sleet, collapse, falling objects, and freezing (with conditions).
- Coverage A is typically on a replacement cost basis for DP‑2.
- Tree coverage: up to $500 per tree (often subject to a percentage limit of the policy — commonly 5% or 10% of Coverage A).
- Freezing of plumbing is covered only if the insured took steps to maintain heat or otherwise protect the property.
DP‑3 — Special (Open Perils) ✨
DP‑3 is open perils for the dwelling: it covers any loss to the dwelling unless the peril is specifically excluded. That makes DP‑3 the most comprehensive form for property coverage.
- Theft of dwelling-related property is covered on DP‑3 (theft is not automatically covered on DP‑1/DP‑2).
- Tree coverage and the $500 per tree rule apply to DP‑3 as they do to DP‑2.
- DP‑3 is the preferred choice when broad peril protection is desired for the building.
Key Coverages A–E 📋
All dwelling policies reference the same coverage headings. What changes is how the policy responds based on the named or open perils for the policy form.
Coverage A — Dwelling
Coverage A protects the main building (walls and roof). It also covers:
- Materials and supplies on the premises intended to become part of the building (for example a pallet of roof tiles).
- Property used to service the premises (for example a lawnmower stored on the property).
Note: Theft of materials or supplies is only covered under DP‑3; fire damage to those items would be covered under any DP form that includes the fire peril.
Coverage B — Other Structures
Coverage B pays for detached structures such as sheds, detached garages, gazebos — anything not attached to the main dwelling.
- Coverage B is usually 10% of Coverage A.
- On all dwelling forms except DP‑1, Coverage B is in addition to Coverage A. DP‑1 does not automatically treat B as addition to A in the same way; DP‑1 is more a la carte.
Coverage C — Personal Property (Contents) 🧳
Coverage C protects contents: clothing, furniture, electronics, and other items you would move in a U‑Haul. On dwelling policies, Coverage C is optional and must be activated (a premium will appear on the declarations page).
- If purchased, Coverage C is usually 50% of Coverage A by default.
- Landlords commonly leave C off (their tenants need contents coverage) unless the owner wants to insure personal property they keep on the premises.
Coverage D — Fair Rental Value (For Landlords) 💸
Coverage D reimburses lost rental income when a rental unit is uninhabitable due to a covered loss.
- Coverage D is commonly 20% of Coverage A.
- This is an indirect loss — it pays for lost income while repairs occur.
Coverage E — Additional Living Expense (ALE) 🏨
Coverage E helps pay for temporary living expenses (for example, a hotel) if the insured must live elsewhere while the dwelling is repaired.
- On dwelling forms used by landlords, Coverage D (fair rental value) and Coverage E (ALE) often share a combined limit — commonly 20% of Coverage A in total. That means the amounts available for lost rent and living expenses come from the same pool.
- On DP‑1, ALE may be available only as an endorsement depending on the company and the insured’s choices.
Perils, Exclusions & Important Conditions ⚠️
Understanding which perils trigger payment is the central testable concept:
- DP‑1: named perils — fire, lightning, internal explosion. ECP can add wind, hail, aircraft, riot, vehicle, explosion, smoke (WHARVES).
- DP‑2: broader named perils including many physical losses (burglary, freezing with condition, collapse, etc.).
- DP‑3: open perils for the dwelling unless specifically excluded (includes theft of dwelling items).
Other important rules:
- Tree damage: DP‑2 and DP‑3 typically pay up to $500 per tree, subject to a percentage aggregate limit. DP‑1 usually has no tree coverage.
- Freezing of plumbing: covered only if the insured took reasonable steps to maintain heat or otherwise protect the plumbing.
- Insects, vermin and rot: not covered if the insured knew about the condition. Hidden or unknown infestations that cause loss may be covered under DP‑2 and DP‑3 but not DP‑1.
- Earthquake: excluded by standard forms, but can be added by endorsement. If earthquake causes a fire, the fire damage is covered. Many programs use a 72‑hour window for earthquake-related deductibles.
Memorization Tips & Exam Shortcuts 🧠
Use simple images and mnemonics to keep things straight:
- Think of DP‑1 as Bob who drinks black coffee — basic, ACV for dwelling, pick and choose add‑ons (ECP then VMM).
- DP‑2 is the latte — broader automatic named perils and replacement cost for dwelling.
- DP‑3 is the special mocha — open perils unless excluded, theft included.
- WHARVES = wind, hail, aircraft, riot, vehicle, explosion, smoke (extended coverage perils).
- Remember these numeric relationships: B = 10% of A; C = 50% of A if purchased; D + E = 20% of A (shared pool on common dwelling forms).
- Coverage B is “in addition to” A on all forms except DP‑1 — that exception is frequently tested.
Exam Tip: Always determine whether a policy reacts by the peril (named vs open) rather than assuming all coverages behave the same way on every form.
Final Checklist Before You Sit the Exam ✅
- Can you list the three dwelling forms and the core difference (perils)?
- Do you know which form uses ACV for Coverage A (DP‑1) and which typically use replacement cost (DP‑2/DP‑3)?
- Can you recite WHARVES and explain ECP then VMM sequencing for DP‑1?
- Do you remember the percentage relationships: B = 10% of A; C = 50% of A (if bought); D + E = 20% of A?
- Are you clear on freezing, tree coverage, theft rules, and the earthquake/fire interaction?
Master these points and you will have strong footing on dwelling policies for the insurance exam and in practical rental property insurance decisions.
Recommended: Gold
The GOLD Course is ALWAYS the recommended class series for all students as it teaches the material in more depth. Over 30 hours of the most in depth classes with a more intensive teaching of the topic. Learn more about P&C GOLD
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