DP-2 Policy

What is DP2 Policy?

Commonly known as Dwelling Fire Form 2, a DP2 policy is created for rental properties and is a named-perils insurance policy.

As this policy operates a named perils form, it only covers losses detailed within the policy, usually 18 perils.

DP2 policy is the second of three insurance forms, and differently from a DP1 policy, it insures the property for its replacement cost (See also Functional Replacement Costs). Using this system means the insured person/s will receive a total payout to repair or replace the property with similar or new items.

Purchasing a DP2 policy is deemed to be the middle-of-the-road type of landlord insurance policy. This is because the coverage offered is somewhere between the DP1 and DP3 policies.

Key Fact: DP2 policies are good for investors that need decent coverage that doesn’t cost so much.

DP2 Policy

A DP2 policy offers coverage for damages to the primary building and other builds like garages, fences, sheds, and patio coverings.  Just like a DP1 policy, a DP2 doesn’t include liability coverage, but it can generally be added to your policy for an additional fee. Note: this would be considered an additional coverage)

Extra Information: Liability coverage can pay for any legal fees that occur if someone puts in a claim against you for being responsible for damage or injury to their property.

A DP2 policy is only effective when a loss occurs from a stated event or peril within your policy agreement. (See also Human Perils)

Although policies can differ, the usual perils named in a DP2 policy are as follows:

•      Internal and External Explosions
•      Windstorms
•      Hail
•      Riots
•      Smoke
•      Aircrafts
•      Vehicles
•      Volcanic Explosions
•      Cracking or bulging
•      Freezing Pipes
•      Vandalism or Burglary Damage
•      Weight of Snow
•      Electrical Damage
•      Broken Glass
•      Collapse
•      Water or Stream
•      Falling Objects

However, bear in mind, cracking or bulging, electrical damage, and water or stream discharge will only be covered when they are caused by an unexpected accident.

As the DP2 policy protects for more perils than DP1, many landlords chose to purchase this policy. The cost is relatively low when you compare it to DP3 policy and offers a decent amount of cover from property owners on a tight budget.

Fair Rental Value

Fair Rental Value helps to protect a landlord’s investment into a property. Naturally, as a landlord, you are dependent or reliant on your rental revenue as part of your income.

So, if, for example, a fire or wind storm causes damage or destroys part or all of your property, this will leave your property unlivable, and any tenants will have to move out so no rent can be collected.

Key Fact: Even if you do file a claim for damage on your property, any bills such as property taxes or mortgages must continue to be paid.

Knowing that the bills mentioned above will need to be paid, this is where fair rental value protections can support a landlord.

With a DP2 or DP3 policy, fair rental value is included within your landlord insurance. Your insurance company will pay your rental income if one or more of the eighteen perils makes your property unlivable or uninhabitable.

Factoring fair rental value into these two policies ultimately sets them apart from both standard homeowners’ insurance and the DP1 policy. It provides that stability and peace of mind that you can still pay your bills while protecting your rental income.

DP2 Replacement Cost

As well as a DP2 policy covering a more comprehensive range of perils than the standard DP1 policy, the broad form insures the property for its replacement cost instead of its actual cash value.

The key difference between the two is that the replacement cost will cover or pay for the total cost of replacing or repairing damages to your property at the current price. In contrast, the actual cash value will only provide cover for the depreciated worth.

Working Example:

For instance, you own a property that is 2000 square feet (the building or house) and has been standing for 40 years.

The total cost per square foot to rebuild the entire house is $200 or $400,000 in total to begin rebuilding.

If you purchased a DP2 policy, your insurance company would give you the full value within the range of your policy limits, which would allow you to make any repairs.

Note: With this policy, the age of your house is not considered; however, with a DP1 policy, the 40 years of wear and tear would be deducted from your payout- so you’ll be expected to pay more of your rebuilding costs.

DP2 Policy and Vacant Homes

Usually, a DP2 policy is not suitable for vacant properties expected to sit vacant for a lengthy period.

Key Fact: Several of the perils listed as covered within a DP2 policy become excluded from cover once the home has been unoccupied for a while. Typically the exclusion cutoff is anywhere between 30 to 60 days, but it depends on your insurance company.

DP2 policies tend not to insure vacant properties because problems go unidentified. After all, no one is in the property to notice them quicker, meaning the situation gets worse and expensive claims will be submitted.

DP2 vs. DP3

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* Except those detailed in the policy as uncovered or excluded perils. See also Insurance Exclusions

Note: Only some policies include personal liability and personal property cover, so ask your agent or thorough check your policy

DP2 Policy Round-Up

DP2 is commonly referred to as the broad form policy or Dwelling Fire Form 2. Unlike a standard DP1 policy, it’s a type of coverage that helps protect rental properties and is usually unsuitable for properties sitting vacant for a lengthy period.

Selecting the DP2 policy is deemed the middle-of-the-road compared to the other two policy types and provides landlords with a decent level of protection for a price that fits a tight budget.

The standard dwelling fire form 1 policy-protected only nine perils. The DP2 policy expands on that coverage protecting eighteen different perils, including freezing pipes and vandalism, and burglary.

A DP2 policy offers coverage for damages to the primary building and other structures like garages, fences, sheds, and patio coverings.  Just like a DP1 policy, a DP2 doesn’t include liability coverage, but it can usually be added to your policy for an additional fee.

A factor that sets apart a DP1 policy and a DP2 policy is the inclusiveness of benefits from fair rental value. Suppose your property becomes uninhabitable after damage from an insured peril. In that case, your insurance company will pay your rental income, offering you stability if you rely on these funds as your primary source of income.

Note to Reader

This information is for informational purposes only. Each insurance company has different coverages for its individual policies.

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