If you own a rental property, then you’ll likely want a DP3 insurance policy to protect it. Specifically designed with landlords in mind, DP3 insurance is a type of policy that insures against fires -- as well as the physical and financial havoc they can wreak.
Do you have a DP3 landlord insurance policy? Not sure you need one? Here’s what you need to know about these important policies.
What is DP3 insurance
A DP3 policy is what’s called a dwelling fire insurance policy, though it doesn’t just cover damage caused by fires. This type of rental property insurance is an "open peril" policy, which means it covers any type of peril, as long as it’s not specifically excluded. Covered perils might include a fire, tornado, storm, or other weather event. (Flooding is usually excluded. You’ll need a flood insurance policy to protect you from this sort of damage.)
DP3 policies are very similar to homeowner’s insurance, except they’re for use on non-owner-occupied properties, including condos and duplexes. All in all, a DP3 landlord policy usually covers the following if a non-excluded event occurs at the property:
- Loss of rent: If a fire renders your property unusable or a tenant must move out while it undergoes repairs, a DP3 policy can compensate you for lost rent during that time period.
- Damage to the structure: Just as a homeowners policy/HO3 policy would, DP3 insurance covers any damage to the home if an event occurs.
- Personal liability coverage/medical payment coverage: If someone suffers bodily injury during an event at the home, this is usually covered by your DP3 policy.
You can also add additional coverage for other structures on the property (like a shed or garage, for example) and damage to certain personal property in the rental dwelling. This might include appliances or furniture you purchased.
Is DP3 insurance required?
DP3 dwelling insurance isn’t required, but if you want to protect your property as well as the money you’ve poured into it, purchasing one is certainly a smart idea. Without it, you’d be on the hook for serious costs should a natural disaster or major event damage your property.
And don’t forget: You would also suffer lost rent while repairing the property. Depending on how severe the damage is, that could mean losing income for months -- even years -- at a time.
Additionally, if you’ve financed your property with a mortgage loan, your lender will likely require it to be insured for at least its full replacement cost. This doesn’t necessarily mean you need DP3 insurance specifically, but you will need some sort of hazard insurance policy to cover the property. (A traditional homeowners policy won’t work, at least not with someone else living in the home, and commercial property policies are reserved for homes with at least three units or more.)
How to save on your DP3 insurance policy
Because rental properties come with a lot more liability than a home you live in, DP3 policies can often be expensive. To make sure you’re not overpaying, always shop around for your insurer. Compare quotes from several insurers, and consider your existing insurance company as well. Buying your insurance coverage through them may qualify you for a bundling discount, which can help make coverage more affordable.
Increasing your credit score, paying upfront, and being choosy about your add-on coverages can also help keep costs to a minimum.
Finally, increasing your deductible is always a smart way to reduce your premiums. Just remember: It will mean paying more out of pocket should a covered loss occur, so make sure you have a healthy emergency fund stashed away just in case.
The bottom line
If you own and operate a rental property, then you’ll want DP3 insurance to protect that investment as well as your bottom line. Consider reaching out to an insurance agent ASAP if you don’t have the proper coverage on your property. You never know when disaster may strike.