Insurance for a Multi-Family: HO-3 vs. DP-3
If you own a multi-family house (2-4 family home), then different insurance policies are used depending upon whether you actually live in the house or you do not. It’s important to get it right.
If you live in a multi-family home, you can usually have the tried and true homeowners policy, know as an HO-3. This is no different from a single family home, and is usually the most economical approach. Use it if you can. You can often use this approach if you're a full time resident. (For ways to use your homeowners policy most effectively, download our Top 10 things to know, linked below)
However, if you’re an owner of a multi-family home and rent out units and live elsewhere, then a different policy us used, called a Dwelling & Fire Policy. The most common (and best) version is called a DP-3.
The DP-3 will cover losses to the home’s structure on an “open perils” policy, loss of use or rental coverage, and can include personal liability. It’s very good coverage. But it costs more than an owner-occupied house, because the owner isn’t there to keep an eye on things!
Never try to squeeze an HO-3 on a property if you live elsewhere; that gives the insurance company basis for denying a claim (This is considered a material misrepresentation of facts). Thus, most rental properties that are not owner-occupied must be insured under a DP-3.
Use an agency that represents multiple insurance companies as Gordon Insurance does. Different companies have different appetites ansd "sweet spots', just as different building owners have different kinds of buildings. Getting the right fit so you can sleep at night knowing you've got the right protection at an always competitive price for all your investment properties.
Below is a table highlighting the differences between homeowners and dwelling policies:
Dwelling & Fire Policy
The HO-3 has been the most common homeowners policy for 60 years and is adequate for the majority of homeowners and their insurance needs.
Coverage A. Dwelling. The amount of money your policy will pay to rebuild your home if it is destroyed up to amount of coverage shown...
Coverage B. Other Structures. Automatic coverage on your policy to pay to rebuild other structures such as garage, sheds & patios.
Coverage C. Personal Property. The amount you have to replace all of your “stuff” in the event of a loss. Best to include “replacement cost” to minimize the effect of depreciation on a loss.
Coverage D. Loss of Use. Funds to rent another place while your damaged home is fixed or rebuilt.
Coverage E. Personal Liability. In the event that you become a defendant in a lawsuit, the insurance company will provide up to $1 Million is coverage.
Coverage E. Medical Payments to Others. Goodwill coverage for medical costs incurred by guests.
Optional Coverages & Endorsements. There are many additional coverage items you can add to your HO-3 including sewer backup, personal jewelry, identity fraud coverage, business pursuits, etc.
Cost: generally less than a Dwelling & Fire policy
The DP-3 is for rental properties that the owner does not occupy. It only covers the basics of the house.
Coverage A. Dwelling. The amount of money your policy will pay to rebuild your home if it is destroyed, up to amount of coverage shown.
Coverage B. Other Structures. YOU Need to state an amount if needed. (Not automatic).
Coverage D. Loss of Use or Fair Rental Value. The funds you will have for lost rent from no tenants while your damaged house is fixed or rebuilt. A small amount of tenant relocation coverage (to help them move) is also included.
Optionally: (some companies include, some do not). Work with a professional to be sure this part is integrated with your other insurance.
Coverage E. Personal Liability. If someone slips and falls, and you get a lawsuit, the insurance company will provide defense and judgments; up to $1 million is generally available. Not all DP-3 policies offer Personal Liability and you may have to get a separate Liability Policy for this protection. NOTE: Work with a professional to be sure this part is integrated with your other insurance. We may be able to extend your homeowners liability to cover the rental (multi-family) property.
Optional Coverages & Endorsements. More limited under the DP-3 than the HO-3, as there are tenants lving there, not the owner.
Cost: generally more than a homeowners
Have your insurance program crafted by professionals who also own invesment real estate, using multiple companies to get just the right combination of protection and price, so you can enjoy the things in life that you like.
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