An investor in Lakeland owns two rental houses a few streets apart. Both are insured, both have tenants, and the premiums are close enough that he never looked at the forms. Then a supply line under a kitchen sink fails on one of them while the tenant is away for a long weekend. The claim on the first house is paid, minus the deductible. On the second, the adjuster explains that the policy is a DP-1, and sudden water discharge is not one of the perils it covers. Same street, same kind of loss, two very different outcomes.
Most Florida landlords insure their rentals on a dwelling policy rather than a homeowners policy, and the dwelling forms come in different versions. The two that matter most are the DP-1 and the DP-3. The names sound technical, but the difference between them decides what a claim pays, how it is paid and how much of the loss the owner keeps. Our guide to dwelling policies for Florida rental property owners covers the basics. This article puts the two forms side by side.
Named perils and open perils
A DP-1 is a named perils policy, and a narrow one. It covers the dwelling for the causes of loss listed in the policy, which start with fire, lightning and internal explosion and usually extend to windstorm, hail, smoke, riot, aircraft, vehicles and explosion. Vandalism is often an optional addition. If a cause of loss is not on the list, the policy does not pay for it, and the owner carries the burden of showing that the damage came from a listed peril.
A DP-3 works the other way around. It covers the dwelling against direct physical loss from any cause that is not specifically excluded, which is often called open perils or special form. The exclusions still matter, and flood, earth movement, wear and tear and long-term seepage are excluded on both forms. But on a DP-3, the policy pays unless the insurer can point to an exclusion, which is a much stronger position for the owner. In between sits the DP-2, a broad named perils form that adds causes such as falling objects, the weight of ice and accidental water discharge to the DP-1 list.
How each form pays a claim
The second difference is how a covered loss is valued. A DP-1 commonly settles at actual cash value, which is the cost to repair or replace minus depreciation for age and wear. On a rental with a fifteen-year-old roof, older cabinets and dated flooring, depreciation can take a large share of the check. A DP-3 generally settles the dwelling at replacement cost, paying what it takes to repair or rebuild with materials of like kind and quality, as long as the home is insured to the value the policy requires.
Roofs are the exception owners should watch. Many Florida carriers now settle roofs at actual cash value or on a payment schedule once they pass a certain age, even on a DP-3 that is otherwise written at replacement cost. That provision sits in the endorsements, not on the front page of the quote.
The same losses under both forms
A kitchen fire is covered on both forms, but a DP-1 may pay it at actual cash value while a DP-3 pays to restore the kitchen. A hurricane that tears off part of the roof is covered on both, subject to the hurricane deductible, though some rental placements in Florida exclude wind entirely and need a separate wind policy. A burst supply line is usually not covered on a basic DP-1, because sudden water discharge is not a listed peril, while a DP-3 generally covers the resulting damage subject to any water damage limit. A tree limb that falls through the roof without wind behind it is covered on a DP-3 and may not be on a DP-1.
Theft is a gap on both forms. Dwelling policies are built around the structure, and theft of the owner’s appliances or furnishings at a rental is generally covered only if a theft endorsement is added. Damage a tenant causes on purpose is a separate question again, and many policies limit or exclude it, so the lease, the security deposit and the endorsements all matter.
Loss of rents and liability
When a covered loss makes a rental uninhabitable, the owner loses the rent as well as the use of the building. A DP-3 typically includes fair rental value coverage, which pays the rent the property would have earned while it is repaired. On a DP-1, that coverage is often limited or available only as an option. For an owner whose mortgage depends on the rent, it is one of the most important coverages on the policy.
Neither form includes liability on its own. Landlord liability, which responds when a tenant or visitor is hurt and claims the owner was responsible, is added by endorsement or written separately. Rentals with pools, stairs, docks or shared areas deserve higher limits, and an umbrella above the rental liability is worth considering for owners with several properties.
When a DP-1 makes sense
A DP-1 is not always the wrong choice. It costs less, and for an older rental that is paid off, where the owner is comfortable absorbing smaller losses and mainly wants protection against a fire or a major storm, it can be a reasonable fit. It is also common on properties that do not qualify for broader forms, such as homes with older systems or roofs, and on some vacant or hard-to-place dwellings.
The trade-off is that the savings come from exactly the coverage most rental claims need. Water damage, actual cash value settlement and limited loss of rents are where a DP-1 tends to disappoint, and those are the losses that happen most often between tenants. For a property with a mortgage, a newer roof or a tenant base that depends on the home being livable, a DP-3 is usually worth the difference in premium.
Vacancy and short-term rentals
Both forms restrict coverage once a property has been vacant for a set period, commonly 60 consecutive days, and the restrictions typically remove vandalism, glass breakage and water damage. Owners who expect a long gap between tenants should tell the carrier and ask about a vacancy permit or a vacant dwelling policy. Short-term rentals are a different exposure altogether, and many dwelling policies exclude them or require a specific short-term rental form, as our article on whether homeowners insurance covers Airbnb in Florida explains.
Worth confirming on your policy
-
Whether each rental is on a DP-1, DP-2 or DP-3 form
-
Whether the dwelling is settled at replacement cost or actual cash value, and how the roof is paid
-
That sudden water discharge is covered, and any water damage limit
-
That fair rental value is included at a limit that matches current rent
-
That landlord liability is on the policy, with limits that fit the property
-
Whether wind is included or written separately, and the hurricane deductible in dollars
-
What the policy says about vacancy, and after how many days
-
That flood coverage is in place if the property is in or near a flood-prone area
Talk to us
Prestige Insurance Group insures rental properties across Florida for owners with one house and investors with many. We compare DP-1 and DP-3 options property by property, show what the price difference buys, and add the liability, loss of rents and flood coverage each rental needs. Our rental property insurance page has more on how we work with landlords.
Call the office nearest you. Se habla español.
-
Miami: 305-969-8776
-
Orlando: 407-993-2331
-
Stuart: 772-247-3788
This article is general information, not legal advice. Coverage forms, endorsements and carrier appetite vary and change over time. Prestige Insurance Group, Florida agency license L057894.
