Do you own or plan on owning rental properties? They’re a great source of income but keeping the expenses low is a must. One big expense is the insurance. Let’s talk about the different types of policies out there.
Dwelling Policy (DP1)
This is the very basic policy. It’s a named risk insurance. That means it only covers these types of perils (losses). It’s very restricted with the next policy types sometimes referred to as broad. They are also ACV policies which means they are actual cash value. If you have a loss to your roof then the roof’s life is pro-rated so you will not receive a full replacement on the roof. They would say the roof had a 15-year rating. You’ve had it for 7 years and then your pay out would be half the value minus your deductible. As you can tell your self-insuring a bit.
Named Perils
Fire & Lightening
Internal & External Explosion
Windstorm & Hail
Riot & Civic Commotion
Smoke
Aircraft
Vehicles
Volcanic Explosion
Vandalism and Malicious Mischief
Dwelling Policy (DP2)
This is a broader policy with a longer list of loss (perils) included. It’s a middle of the road policy. It’s not as restrictive or bare bones but not as broad as the DP3. See the extra named perils below. You can also add on items like loss of rent however these policies has more restrictions. It wouldn’t allow a home to be vacant for more than 30-60 days.
Additional Named Perils
Burglary Damage
Weight of snow and ice
Glass Breakage
Accidental discharge or overflow of water or steam
Falling objects
Freezing pipes
Electrical damage
Collapse
Tearing apart, cracking, burning or bulging
Dwelling Policy (DP3)
This is the top tier of policy types. The list of named perils is even greater and it’s a replacement cost policy so there is no pro-rating for damages. If your roof again only has 7 years left of life and damage occurs you will receive the full amount to replace it minus your deductible. It’s based on today’s value as well.
Additional Named Perils
Ordinance or Law
Earth Movement
Water Damage (some may be included in this policy)
Power failure
Neglect
War
Nuclear Hazard
Intentional Loss
Governmental Action
Mold (again, some may be included in the policy)
Not all insurance companies offer these three types. Many will only offer a DP3 and so it’s important to ask questions and to understand what type of policy you have or what type of policy you’re being quoted. Now keep in mind if you have a vacant home you won’t have choices, unfortunately most of the time a DP1 will be the only option. Just remember to do your homework and ask a lot of questions. That’s what we Agents are here for. If the Agent isn’t willing and able to help then it’s probably time to make a switch.