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 may be 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 HO-3. This is no different from a single family home, and is usually the most economical approach. Use it if you can.
However, if you’re an owner of a multi-family home and rent out all units and live elsewhere, then a different policy called a Dwelling & Fire Policy is needed. 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.
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.
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.
Coverage E. Personal Liability. In the event that you become a defendant in 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: If you own a primary home and have personal liability on that homeowners policy, you may be able to extend the liability to cover the rental (multi-family) property.
Optional Coverages & Endorsements. More limited under the DP-3 than the HO-3.
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