An individual owns a primary residence and a rental dwelling. They are seeking property insurance for the rental dwelling, which is occupied by tenants and does not contain any of the owner's personal belongings. Which policy would be most appropriate for this situation?
- ADwelling Policy (DP-1).
- BPersonal Auto Policy (PAP).
- CDwelling Policy (DP-3).
- DHomeowners Policy (HO-3).
Show answer & explanationAnswer & explanation
Correct answer: C. Dwelling Policy (DP-3).
A Dwelling Policy is designed for rental properties or other dwellings that do not qualify for homeowners insurance. Specifically, a DP-3 (Special Form) provides open perils coverage for the dwelling and other structures, offering broader protection than a DP-1 (Basic Form), which covers only named perils. Since the owner wants robust coverage for their rental property, DP-3 is the most appropriate choice. A Homeowners Policy (HO-3) is for owner-occupied residences, and a PAP is for vehicles.
Why the other options are wrong
- A. A DP-1 is a basic form dwelling policy that provides named perils coverage, which is less comprehensive than a DP-3 and may not be preferred for a rental property.
- B. A Personal Auto Policy covers vehicles, not real property.
- D. An HO-3 policy is for owner-occupied dwellings and would not be appropriate for a rental property where the owner does not reside.
Dwelling Policy Forms (DP-1, DP-2, DP-3)
Insurance policies designed for dwellings that are not eligible for homeowners insurance, such as rental properties, vacation homes, or vacant properties, offering varying levels of peril coverage.
- DP-1 (Basic): Named perils only, ACV settlement.
- DP-2 (Broad): Named perils, broader than DP-1, RC for dwelling/structures.
- DP-3 (Special): Open perils for dwelling/structures, named perils for personal property, RC for dwelling/structures.
Memory trick: DP forms are for 'non-owner' homes: 1 is basic, 2 is broad, 3 is special (open).