A DP1 insurance policy is the most basic form of dwelling fire coverage, written for properties that don’t qualify for a standard homeowners policy. It covers only a short list of named perils, and it pays claims based on what the damaged property was worth at the time of the loss rather than what it costs to rebuild. That combination makes it the cheapest dwelling policy on the market and also the thinnest.
Who Typically Buys a DP1
Standard homeowners policies assume someone lives in the house, maintains it, and would notice a problem quickly. When those assumptions don’t hold, insurers either decline to write a standard policy or price it steeply. A DP1 steps in as the stripped-down alternative.
The common situations:
- A home sitting vacant while it waits for a buyer. Most homeowners policies won’t cover a dwelling vacant beyond 30 to 60 days.
- Inherited property stuck in probate with no one living there.
- Budget-conscious landlords who want the lowest possible structure coverage and plan to add liability separately.
- Properties being renovated for resale, which often can’t get standard coverage.
- Older homes that fail standard underwriting because of outdated wiring, an aging roof, or similar issues.
If you live in the home yourself and none of these fit your property, a standard homeowners policy or a DP3 dwelling policy will almost always serve you better.
What a DP1 Covers
A DP1 protects the physical structure: walls, roof, floors, built-in appliances, and permanently attached fixtures. Coverage generally extends to attached structures like a porch or built-in garage. Depending on the insurer, you may also be able to add coverage for detached structures, personal property kept at the premises, and fair rental value if a covered loss makes the property uninhabitable. None of those are automatic on every DP1, so check what’s included and what’s available as an add-on.
Two things the base DP1 never includes are personal liability and loss-of-income coverage. If a tenant or visitor is injured and sues, the base policy won’t cover legal costs or a judgment. If a fire makes your rental uninhabitable and rent stops coming in, the base policy won’t reimburse that income either. Both can be added by endorsement.
The Named Perils
A DP1 uses a named-perils structure: if the cause of damage isn’t on the list, there is no coverage. This is the opposite of how most homeowners policies work, where everything is covered unless specifically excluded.
The standard DP1 covers roughly ten perils:
- Fire and lightning, including accidental fires, electrical fires from faulty wiring, fires that spread from a neighboring property, and direct lightning strikes. Smoke damage from a covered fire is included; gradual smoke damage from years of fireplace use is not.
- Windstorm and hail. Interior water damage is only covered if wind or hail first creates an opening in the building. Rain leaking through an otherwise intact roof doesn’t count.
- Explosion, such as a gas leak igniting. Gradual deterioration of pipes or gas lines is excluded.
- Riot or civil commotion.
- Aircraft and vehicle impact with the structure.
- Volcanic eruption.
- Smoke, though not all DP1 forms list this as a separate peril.
That is the list. If you’re reading it and thinking about falling trees or burst pipes, those are precisely the kinds of everyday risks a DP1 does not cover.
What a DP1 Does Not Cover
The exclusions matter more than the coverage, because the list of things left out is far longer than the list of things included.
- Theft and vandalism are typically excluded from the base DP1. A vandalism endorsement is sometimes available; theft coverage is harder to add and may not be offered at all. Vandalism coverage is often voided once the property has been vacant beyond the insurer’s threshold.
- Water damage from plumbing. A burst pipe, overflowing water heater, or backed-up drain is not a named peril. These are among the most common property losses, and they are simply not covered.
- Falling objects. A tree limb crashing through the roof in calm weather is excluded unless it happens during a covered windstorm.
- Weight of ice, snow, or sleet. Roof collapse from heavy snow is not covered.
- Freezing pipes.
- Flood and earthquake. Both require separate policies. Flood coverage typically comes through the National Flood Insurance Program or a private flood insurer.
- Liability. No coverage for injuries on the property or legal defense unless added by endorsement.
These aren’t exotic risks. Burst pipes, falling limbs, and ice damage generate insurance claims every winter. Buying a DP1 means accepting that exposure.
Building Code Gaps
After a covered fire or windstorm loss, local building codes may require you to bring the damaged portion of the structure up to current standards. Wiring, plumbing, insulation, structural framing, and accessibility features may all need upgrading. A DP1 pays to restore the property to its pre-loss condition. It does not pay the additional cost of code compliance.
An ordinance or law endorsement can cover these upgrade costs, but availability varies and it isn’t universal on DP1 forms. If the property is older, ask about this specifically. Upgrade costs after a major loss on a 30-year-old home can rival the cost of the original repairs.
How Claims Are Paid: Actual Cash Value
A DP1 pays on an actual cash value basis, meaning the insurer deducts depreciation from every payout. You receive what the damaged component was worth given its age and condition at the moment it was destroyed, not what it costs to replace with new materials.
The math: suppose a roof has a 25-year expected lifespan and it’s 15 years old when hail destroys it. The insurer treats the roof as having used up 60 percent of its useful life, leaving 40 percent of its value. If replacement costs $10,000, the payout is around $4,000 minus the deductible. You cover the remaining $6,000.
This depreciation applies to every component: siding, wiring, windows, flooring, appliances. On an older property, the gap between the ACV payout and the actual repair cost can be large. Insurers use standardized depreciation schedules and industry pricing databases, and those figures don’t always match what a local contractor actually charges, especially when construction costs are rising.
Review your coverage limits periodically. If the building has appreciated or local construction costs have climbed, the ACV payout will cover a smaller share of the real repair bill than you might expect.
Vacancy Rules
Vacancy is where DP1 policies get complicated, which is ironic because vacant properties are one of the main reasons people buy them. Most insurers follow the standard fire policy provision restricting coverage when a dwelling has been vacant or unoccupied for more than 60 consecutive days. After that, coverage for certain perils may be suspended or voided entirely, with vandalism typically the first to go.
Insurers also distinguish between “vacant” (no people and no furnishings) and “unoccupied” (furnished but nobody living there), and some policies penalize vacant properties more heavily. A home being actively renovated usually isn’t considered vacant, even if no one is sleeping there.
If the property will sit empty for an extended period, ask the insurer about a vacancy permit or endorsement. These extend coverage past the standard 60-day window at a higher premium, and they may cap coverage for vandalism or water damage. Failing to disclose vacancy is a fast way to have a claim denied.
Common Endorsements
The base DP1 is deliberately bare, but endorsements let you fill specific gaps. Availability and cost vary by insurer and location.
- Liability coverage, commonly at $100,000, $200,000, or $300,000 limits. For landlords, this is arguably the most important endorsement on a DP1.
- Fair rental value, reimbursing lost rent when a covered peril makes the property uninhabitable. Coverage is often capped at 10 percent of the dwelling coverage amount.
- Vandalism and malicious mischief, especially important for vacant or between-tenant properties, though the vacancy time limit may still apply.
- Personal property, covering belongings inside the dwelling such as appliances or furnishings you provide for tenants. Even with the endorsement, coverage stays limited to named perils and ACV settlement, and jewelry, firearms, and business property are commonly excluded.
- Replacement cost, which upgrades claim settlement from actual cash value to replacement cost. This is the single most impactful upgrade available, but it isn’t offered everywhere.
- Ordinance or law, covering the cost of bringing a damaged structure up to current building codes. Critical for older properties.
Endorsements raise the premium, but the cost is usually modest compared to the exposure they address. A liability lawsuit or a code-compliance bill after a fire can easily exceed the value of the property itself.
How DP1 Compares to DP2 and DP3
Dwelling fire policies come in three standard forms, and the differences are substantial.
DP2 Broad Form
A DP2 covers everything a DP1 covers plus several additional named perils that address the biggest DP1 gaps. Those typically include falling objects, weight of ice and snow, accidental discharge of water or steam from plumbing or appliances, sudden cracking or tearing of heating and cooling systems, and freezing of pipes.1Risk Education. Dwelling Property 2 – Broad Form (ISO DP 00 02) A DP2 also typically settles dwelling claims on a replacement cost basis, which eliminates the depreciation problem. For an occupied rental, the broader protection is usually worth the higher premium.
DP3 Special Form
A DP3 flips the coverage model. Instead of listing which perils are covered, it covers all causes of direct physical loss except those specifically excluded. Common exclusions still apply for flood, earthquake, wear and tear, intentional damage, and a handful of other categories. The DP3 settles dwelling claims on a replacement cost basis, subject to an 80-percent coinsurance requirement: insure for at least 80 percent of the home’s full replacement cost and claims pay without depreciation.2Risk Education. Dwelling Property 3 – Special Form (ISO DP 00 03) Fall below that threshold and the payout is reduced.
A DP3 is the closest thing to a standard homeowners policy for non-owner-occupied properties. It costs more than a DP1 or DP2, but it’s the right choice for landlords who want comprehensive protection.
Choosing the Right Form
For a vacant property awaiting sale or demolition, a DP1 may be all you need. For an occupied rental where you want real protection against the full range of common losses, a DP2 or DP3 fits better. A single burst-pipe claim that a DP2 would have covered can cost more than years of the premium difference.
Mortgage Lenders and the DP1 Problem
If the property has a mortgage, a DP1’s ACV settlement is likely to create a problem. Fannie Mae requires that property insurance on one- to four-unit properties settle claims on a replacement cost basis. Policies that use actual cash value, or that limit, depreciate, or otherwise reduce payouts below replacement cost, are explicitly not acceptable.3Fannie Mae. Property Insurance Requirements for One-to Four-Unit Properties Freddie Mac imposes similar requirements for loans it purchases.
When a borrower’s insurance doesn’t meet the lender’s standards, the servicer is required to obtain force-placed insurance on the property and charge the premium to the borrower.4Fannie Mae. Lender-Placed Insurance Requirements Federal regulations acknowledge that force-placed insurance “may cost significantly more” and provide less coverage than a policy the borrower purchases independently.5Consumer Financial Protection Bureau. 12 CFR 1024.37 Force-Placed Insurance
If there’s a mortgage on the property, you’ll generally need a DP1 with a replacement cost endorsement (if the insurer offers one), a DP2, a DP3, or a standard homeowners policy. Buying a basic DP1 and ignoring the lender’s requirements just means paying for two policies: yours and the more expensive one the lender forces on you.