Dwelling policy (DP-1, DP-2, DP-3)

Dwelling policies exist to insure homes that do not fit a homeowners policy. Rental houses, seasonal and vacation properties, dwellings held for investment, and buildings with up to four units are all typical candidates. The key structural difference is what the form leaves out: a dwelling policy is pure property coverage, so liability coverage and theft coverage are not automatically included — both are added by endorsement when the insured wants them.

The coverage parts follow a consistent lettering. Coverage A insures the dwelling itself, Coverage B other structures on the premises, and Coverage C personal property. Coverage D pays fair rental value when a rented dwelling becomes uninhabitable, and Coverage E pays additional living expense when the owner-occupant has to live elsewhere during repairs.

The three forms differ chiefly in perils and loss settlement. DP-1, the basic form, is a named-peril form covering fire, lightning, and internal explosion, with the extended coverage perils — windstorm, hail, explosion, riot and civil commotion, aircraft, vehicles, smoke, and volcanic eruption — plus vandalism and malicious mischief added by endorsement; losses are settled at actual cash value, meaning replacement cost minus depreciation. DP-2, the broad form, covers a longer named-peril list that adds losses such as falling objects, weight of ice and snow, accidental discharge of water or steam, and freezing of plumbing, and it settles dwelling losses on a replacement cost basis. DP-3, the special form, is the broadest and most commonly sold: it covers the dwelling and other structures on an open-peril basis, meaning everything is covered unless specifically excluded, while personal property remains on the DP-2 named-peril list.

Property and casualty licensing exams test this hierarchy closely. The property and casualty, property-only, and personal lines exams all expect you to match a form to the perils it covers, recall that DP-1 settles at actual cash value while DP-2 and DP-3 use replacement cost, know that open-peril coverage in DP-3 applies to the structure but not to contents, and remember that theft and liability require endorsements.