Getting The Right Coverage

[Nicolas Biangel]

A friend of mine had purchased a rental and the agency he worked with sold him a HO5 policy. When he showed me the cost of the policy, I questioned the type of policy, advising that it may not be the right one for his rental and expressed the potential outcome of denial, rescission or misrepresentation if a claim was presented. With that being said, it seems important to discuss what a HO5 policy is and why a DP3 policy for rentals is the right choice.

The HO5 is one of the most comprehensive forms of homeowners insurance available. It offers:

-Open-peril coverage on both the home and personal property (everything is covered unless specifically excluded).
-Higher limits for personal belongings and valuable items.
-Replacement cost coverage for personal property.

However, an HO5 is specifically built for owner-occupied homes—meaning you live in the property as your primary residence. Once the property is rented out, the policy no longer fits your situation. In fact, using an HO5 on a rental could lead to claim denials, since the property’s use has changed from personal to commercial.

The DP3, also known as a dwelling fire policy, is designed with landlords in mind. It offers protection for rental properties by focusing on the risks that matter most to property investors:

-Open-peril coverage for the dwelling (covers nearly all causes of loss unless excluded).
-Loss of rental income if the property becomes uninhabitable due to a covered claim (such as fire, storm damage, or burst pipes).
-Landlord liability protection, covering you if a tenant or guest is injured on the property and holds you responsible.
-Flexible coverage options for detached structures, appliances, and systems you own inside the rental.
It’s important to note that while the DP3 protects the structure and your financial interests as a landlord, it does not cover tenants’ personal belongings. Tenants should carry their own renters insurance.

Why DP3 Is the Best Choice for Rental Properties

--Matches the Use of the Property: Insurance companies require policies that reflect how the property is being used. Renting out a home under an HO5 policy creates a mismatch that can void coverage. DP3 is built for rentals, ensuring your claims are valid.
--Protects Your Income Stream: One of the biggest risks for landlords is losing rental income when a property is damaged. DP3 includes loss of rents coverage, so your income continues even if tenants must move out during repairs.
--Covers Landlord-Specific Liability: If a tenant slips on an icy walkway or a guest is injured on the property, landlord liability coverage under DP3 helps protect you from lawsuits and medical bills—coverage that an HO5 won’t provide in a rental situation.
--Keeps Responsibilities Clear: The DP3 covers what you own (the building, appliances, systems), while your tenants cover what they own (furniture, clothes, electronics) through their renters insurance. This separation prevents disputes and keeps coverage clean.

My friend finally saw the light and asked for a DP3 coverage on his rental.