The Dwelling policy is a foundational property contract that insures a home and related property without the bundled liability and broad packaging of a homeowners policy. New agents see it constantly on the exam because it introduces the core mechanics — forms, coverages, perils, and valuation — that carry over into homeowners and commercial property. This complete guide covers everything you need: who buys it, the DP-1/DP-2/DP-3 forms, the lettered coverages, the perils, and the endorsements that round it out.

Who uses a Dwelling policy and why

A homeowners policy assumes an owner-occupant living in the home with personal belongings inside. Many residences don't fit that mold, and the Dwelling policy fills the gap. Typical situations include:

• Rental dwellings occupied by tenants while the owner insures the building.
• Seasonal or secondary homes that sit empty for stretches of the year.
• Older or lower-value homes that fail homeowners underwriting guidelines.
• Tenant-occupied 1–4 family residential properties.

The dwelling form is flexible: it can be written where homeowners is unavailable, and missing protections (like liability) can be bolted on with endorsements.

The dwelling forms

The Dwelling program uses three main forms. They differ chiefly in how many perils they cover and how they pay claims.

DP-1 — Basic Form

• The narrowest and cheapest option.
• Base coverage is fire, lightning, and internal explosion.
• Extended Coverage (EC) can be added — windstorm, hail, explosion, riot and civil commotion, aircraft, vehicles, smoke, and volcanic eruption.
• Vandalism and Malicious Mischief (V&MM) can also be added.
• Losses are commonly settled at actual cash value (ACV) — replacement cost minus depreciation.

DP-2 — Broad Form

• A wider list of named perils than DP-1.
• Adds perils such as windstorm/hail (built in), falling objects; weight of ice, snow, or sleet; accidental discharge or overflow of water or steam; freezing of plumbing; sudden tearing/cracking/bulging; and damage from artificially generated electrical current.
• Generally pays on a replacement cost basis for the dwelling when insured to value.

DP-3 — Special Form

• The broadest and most popular dwelling form.
• Dwelling (Coverage A) and Other Structures (Coverage B) are open-peril — covered for all causes of loss except those listed as exclusions.
• Personal property (Coverage C) remains named-peril on a broad basis.
• Pays dwelling losses on a replacement cost basis.

The coverages (A–E)

Every dwelling form is organized into lettered coverages.

Coverage A — Dwelling

Insures the main residence, including structures attached to it (such as an attached garage) and materials/supplies on the premises used to build or repair it. This is the anchor limit; other coverages are often calculated as a percentage of Coverage A.

Coverage B — Other Structures

Covers detached structures on the premises — a detached garage, storage shed, fence, or driveway. The limit is frequently provided as a percentage of Coverage A (commonly around 10%), and can be increased.

Coverage C — Personal Property

Insures household contents and personal belongings. In a rental scenario, this generally covers the owner's property kept at the dwelling; tenants insure their own belongings separately. Coverage C may be excluded or set to $0 on rental-focused policies and added back as needed.

Coverage D — Fair Rental Value

If a covered loss makes a rented portion of the dwelling unfit to live in, Coverage D pays the rental income the owner loses during the reasonable time needed to repair — minus expenses that do not continue while the property is unusable.

Coverage E — Additional Living Expense

Pays the extra costs an owner-occupant incurs to maintain their normal standard of living while the home is repaired after a covered loss (temporary lodging, additional meal costs, etc.). On the most basic form, ALE may be limited, and Coverages D and E often share a combined sublimit.

Memory aid: A = the house, B = the other buildings, C = contents, D = lost rent, E = extra living costs.

Perils covered, form by form

• DP-1 Basic: fire, lightning, internal explosion, plus the Extended Coverage perils (wind, hail, explosion, riot/civil commotion, aircraft, vehicles, smoke, volcanic eruption) and optional V&MM.
• DP-2 Broad: all of the above plus broad perils — falling objects; weight of ice, snow, sleet; accidental water/steam discharge; freezing; tearing/cracking/bulging of systems; and artificially generated electrical current damage.
• DP-3 Special: dwelling and other structures are open-peril (covered unless excluded), while personal property follows the broad named-peril list.

Common exclusions

Even open-peril DP-3 coverage does not cover everything. Standard property exclusions typically include flood, earthquake, war, nuclear hazard, ordinance or law, intentional loss, neglect, and wear and tear. Flood and earthquake are insured separately (national flood program or earthquake coverage/endorsement).

Additional coverages and general conditions

Dwelling forms also include several additional coverages, which can vary by form: debris removal, reasonable repairs, property removed (to protect it from a loss in progress), fire department service charge, trees/shrubs/plants (limited), and collapse (on broader forms). Like all property policies, the dwelling form contains conditions on insurable interest, deductible application, the coinsurance/loss settlement clause, duties after loss, appraisal, and subrogation.

Common endorsements

Because the base policy is deliberately narrow, agents commonly add:

• Personal Liability and Medical Payments to Others — to supply the liability protection the dwelling form lacks.
• Theft coverage — basic forms limit theft; this broadens it.
• Automatic Increase in Insurance / inflation guard — keeps Coverage A current with rising rebuilding costs.
• Ordinance or Law — helps pay the added cost of rebuilding to current codes.
• Dwelling Under Construction — adjusts coverage during a build.
• Water Back-Up and Sump Overflow — for sewer/drain backup, normally excluded.

Common exam traps

• No built-in liability: the dwelling policy is property only. Liability must be added by endorsement.
• DP-3 personal property is named-peril, not open-peril — only the dwelling and other structures are open-peril.
• Coverage C in rentals = owner's property, not the tenant's.
• Fair Rental Value (D) ≠ Additional Living Expense (E): D replaces lost rent; E pays the insured's extra living costs.
• DP-1 often pays ACV, while DP-2 and DP-3 generally provide replacement cost.
• Flood and earthquake are excluded and must be insured separately.

Key terms at a glance

• Dwelling policy (DP) — property-only coverage for residences outside the homeowners market.
• DP-1 / DP-2 / DP-3 — basic, broad, and special forms (special = open-peril dwelling).
• Extended Coverage (EC) — added named perils such as wind, hail, smoke, vehicles.
• Coverages A–E — Dwelling, Other Structures, Personal Property, Fair Rental Value, Additional Living Expense.
• Open-peril — covered unless specifically excluded.
• ACV vs. replacement cost — with or without a deduction for depreciation.

Quick recap

• The Dwelling policy insures structures and contents for rentals, seasonal homes, and older dwellings that don't fit homeowners.
• The three forms — DP-1 (basic, named-peril, ACV), DP-2 (broad, replacement cost), DP-3 (special, open-peril dwelling) — increase in breadth and price.
• Coverages A–E = Dwelling, Other Structures, Personal Property, Fair Rental Value, Additional Living Expense.
• DP-3 makes the dwelling open-peril but keeps personal property named-peril.
• The form has no built-in liability, and flood/earthquake are excluded, so endorsements and separate policies fill the gaps.