Oftentimes, a dwelling fire policy is compared to a homeowner’s policy. A standard homeowners policy is a comprehensive package that bundles multiple coverages, including personal liability, medical payments to others, personal property, additional living expenses, and theft. Some of these coverages can be added to a dwelling fire policy through endorsements, depending on the carrier and the property's intended use.
Designed for rental properties and vacant homes, a dwelling policy is also well-suited for rehabbed homes or those undergoing significant construction that may not qualify for a standard policy. A vacation home or cottage that sits empty for months, and older or lower-value homes that are difficult to place in the standard market, are more ideal for a dwelling fire policy.
For rental properties specifically, many carriers offer landlord policies, which are a form of dwelling fire policy with additional coverages, including loss of rental income if the property becomes uninhabitable due to a covered loss. Liability coverage for claims arising from the rental property and coverage for appliances provided to tenants are also often available. A landlord policy can be a better fit for an owner with tenants because it acknowledges the unique risks that come with renting a property to others.
Landlords cannot file a claim for a tenant’s damaged belongings under a dwelling fire policy, and tenants cannot rely on their landlord’s insurance to protect them. Tenants should also carry their own renters’ insurance policy, a very affordable option that covers personal property, liability, and additional living expenses if the unit becomes uninhabitable.
Another important distinction is that dwelling fire policies, particularly those referred to as DP-1 forms, often pay claims on an actual cash value (ACV) basis rather than on replacement cost. ACV means the insurer pays what the damaged property was worth at the time of the loss, after depreciation, rather than what it costs to repair or rebuild today.
Knowing whether your dwelling fire policy pays ACV or replacement cost is essential to understanding your true coverage. For example, a 20-year-old roof that costs $20,000 to replace might only be worth $6,000 in actual cash value.
Whether you own a rental property, a vacant home, a beach house, or a cottage, talking to your independent insurance agent is the best way to understand exactly what your policy does and does not cover.
