Important points
Home insurance is designed for buildings that are not occupied by the owner, such as investment properties or vacant homes.
There are three types of home insurance: DP-1, DP-2, and DP-3, each with different levels of coverage for buildings and personal property.
DP-1 insurance is the most affordable but provides the least coverage, and DP-3 insurance provides the most coverage but is more expensive.
If you read your home insurance policy carefully, you’ll come across something called Coverage A. This is the part of home insurance that provides financial protection for the physical structure of your home. Home coverage is often confused with home fire insurance, but home fire insurance is a completely different type of insurance. Home insurance is primarily designed for places where you live full-time, while home insurance (also known as home fire insurance) is primarily designed for buildings that are not occupied by the owner.
What is home insurance?
Home insurance is a type of property insurance designed for people who own a building but don’t live there full-time. If you live in your home year-round, standard home insurance will likely meet most of your coverage needs. However, buildings that are vacant for long periods of time and buildings that are used as investment properties typically have different coverage needs. This is where home fire prevention measures come into play.
Home fire insurance is designed to insure buildings that may not be covered by a home insurance policy. Properties that have been abandoned for long periods of time come with different risks than their home base. Home fire policies are in place to insure against these risks.
What is the difference between residential fire insurance and homeowners insurance?
Residential fire insurance and housing insurance differ in cost and coverage. Home insurance does not automatically include theft and liability coverage, but they can be purchased as add-ons. Most home insurance policies come with these coverage types included. Residential fire insurance has narrower coverage than home insurance, so premiums are usually lower.
What is covered by housing policy?
Home insurance, known as DP-1, DP-2, or DP-3, is structured similarly to home insurance. Various coverage types work together to protect your property in the event of damage (referred to in the insurance industry as a “peril”) from an unforeseen event. Here we take a closer look at the various main coverage types included in residential fire insurance.
- Residence (Coverage A)
Replace or repair the physical structure of a building, such as walls, floors, foundations, roofs, and other accessory structures.
- Other structures (coverage B)
Replacing or repairing freestanding structures on your property, such as gazebos or sheds.
- Personal property (coverage C)
Compensation for the insured’s personal property
- Appropriate rental price (coverage range D)
If the property is rented and a covered loss makes the property uninhabitable, this will help pay for lost rental income
- Additional Living Expenses (Coverage E)*
If the property is owned and a covered loss makes it unsafe to live in, this will help pay for the owner’s hotel, restaurant and other related expenses
*Not automatically included in DP-1 policy
Who needs home insurance?
If you own a building but it is not your primary residence, home fire insurance may provide the coverage you need. Home insurance is mainly used for the following purposes:
- villa
- hunting lodge
- investment property
- house under construction
- Landlords with 4 or fewer tenants
What is DP-1 insurance?
DP-1 has the least coverage of the three home insurance policies. Unlike other types, additional living expenses coverage is not automatically included. When you file a claim, you are usually paid based on actual cash value (ACV). This means that depreciation is factored into your claim, so your potential payout could be lower. Because of this and the limited coverage, DP-1 is usually the most affordable home insurance policy.
What is DP-2 insurance?
DP-2 covers residences, other structures, and personal property for the various perils listed in the policy. Covers more types of losses than DP-1, but not as many as DP-3. Claims filed under a DP-2 policy are paid based on actual cash value, not replacement value (RCV). In terms of cost, DP-2 is typically more expensive than DP-1, but less expensive than DP-3.
What is DP-3 insurance?
Of the three types of home insurance, DP-3 provides the most coverage. Personal property is covered for loss due to perils specified in the insurance contract. Dwellings and other structures are covered on an open risk basis. That is, unless the risk is specifically excluded by the insurance policy, it is covered. Similar to DP-2, homes and other structures are insured at their replacement value. Personal property is insured at its actual cash value. Because this home insurance type offers the broadest coverage, DP-3 premiums are typically higher than DP-1 and DP-2.
DP-1 vs DP-2 vs DP-3
| danger | DP-1 | DP-2 | DP-3* |
|---|---|---|---|
| fire | ✔ | ✔ | ✔ |
| lightning | ✔ | ✔ | ✔ |
| explosion | ✔ | ✔ | ✔ |
| riot | ✔ | ✔ | ✔ |
| volcanic eruption | ✔ | ✔ | ✔ |
| Vehicle damage | ✔ | ✔ | ✔ |
| Damage caused by aircraft | ✔ | ✔ | ✔ |
| vandalism | ✔ | ✔ | ✔ |
| Theft damage | ✔ | ✔ | |
| Weight of ice, snow, and sleet | ✔ | ✔ | |
| falling object | ✔ | ✔ | |
| frozen | ✔ | ✔ | |
| sudden accidental water damage | ✔ | ✔ | |
| current | ✔ | ✔ | |
| fireplace smoke | ✔ | ✔ |
*Limited to loss of personal property. Dwellings and other structures are covered on an open hazard basis.
What is not covered by home fire insurance?
There are two main things that home fire insurance doesn’t cover: theft and liability. If you want coverage for these two things, you’ll need to purchase a policy add-on called an endorsement. Vandalism is a policy hazard. However, this does not apply if the building is vacant for more than 60 consecutive days. In insurance terminology, “vacant” and “unoccupied” have two different meanings. The vacant building is still furnished, but the vacant house is unfurnished and unoccupied.
Other home fire insurance exclusions are the same as those listed in your home insurance contract. These include:
- flood
- earthquake
- war
- nuclear danger
- government seizure
- ignore
- intentional loss
