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Dwelling Fire – Form 2 (DP-2)
A Dwelling Fire Form 2 (DP-2) is the next step up from the basic DP-1. It is a much broader and better policy in terms of coverage (still no coverage against theft), but it is short of the best protection afforded by the DP-3. It is obviously a little more expensive, though not very much, but the increased coverage often makes the extra expense very worthwhile.
DP-2 policies contain all of the same coverages as the DP-1, but they automatically settle claims and losses on a ‘replacement cost’ basis rather than at actual cash value (ACV) like the DP-1. In addition, DP-2 policies include coverage for vandalism and malicious mischief (VM&M) and, if you choose to pay the extra premium, you may often add an endorsement for coverage against the ‘Accidental Discharge’ of water. Vandalism and water damage coverage are extremely important protections and they are the most common causes of loss for rental units.
Some important things to know about basic DP-2 policies:
- DP-2 policies contain all of the same coverages as a DP-1 policy and, by default, claims are settled on a Replacement Cost basis.
- DP-2 policies are only for occupied property and they ARE NOT available for vacant homes or properties. Only DP-1 policies can be issued in these situations.
- Vandalism and Malicious Mischief are covered and you may often add coverage for the accidental discharge of water (water damage).
Some of the additional coverages or endorsements that investors and property owners need to consider are below. It is important to know that not all companies offer these endorsements with their policies and it is up to you and your agent to decide whether or not these are necessary for your situation.
- Loss of Rent– when a property is damaged due to a covered loss and the property is uninhabitable while being repaired; this coverage will pay the property owner up to six month’s worth of rental income to cover the loss of this money while the property is being repaired. Most banks and lenders actually require this coverage when lending on non-owner occupied properties.
- Vacancy Clause – If the property is unoccupied for 61 continuous days or more, DP-1 policies will, depending upon the company, either automatically cease coverage altogether or they will reduce coverage to only insuring the perils of fire and lightening. Purchasing a ‘vacancy clause endorsement’ (which are usually quite expensive) ensures that in the event of continuous vacancy, the policy will not cease or reduce coverage.
If you own or manage rental property and you would like for us to review any coverages or policies to see if they are appropriate for your risk, or if you simply want to pay less for the same coverage, call us today at (512) 501-4010 or (800) 299-8994and we will be happy to assist you in finding the right insurance solution for your specific needs.
