Texas Landlord Insurance: DP3 vs DP1

Which rental property policy is better for Texas landlords?

Becoming a landlord and owning rental property in Texas can be a great investment opportunity, and it also comes with some mindfulness. Whether you own a short-term rental in Austin, a duplex in San Antonio, or an investment home in Central Texas, choosing the proper landlord insurance policy matters.

What is landlord insurance?

Landlord insurance is intended for a property you own, and do not live in as your primary residence. This may include a long-term rental home, a tenant occupied property, vacation home, lake house, short term rental (STR), or a vacant dwelling while you are between tenants, and when remodeling.

The Texas Department of Insurance (TDI) reminds property owners that traditional homeowner’s insurance will not cover damage to rental property since the standard homeowner’s policy excludes business use. Speak with your local Britton and Britton agent when renting out a home, portion of a home, and considering landlord insurance. Ask about a special endorsement to allow for occasional rental exposure.

A landlord policy may include:

Dwelling coverage for the rental home building
Other structures coverage for detached garages, fences, shed, pergola
Landlord owned personal property, such as appliances or furniture
Loss of rent coverage
Personal liability coverage
Optional endorsements, such as water backup, service line, or others
Property manager as additional insured

Should I choose a DP3 or DP1 policy?

Depends on the property, your needs, your budget, your lender requirements, the age and condition of the home, and how much financial risk you are comfortable with.

At Britton and Britton Insurance agency, we help Texas landlords compare coverage, not just price. A cheaper quote may look attractive at first, but if the policy covers fewer things, or pays claims with depreciation, it may cost more when you have a claim. It’s important to understand the difference so you can make the best choice, for you.

What is a DP3 landlord policy?

A Dwelling Policy Form 3 (DP3) policy is often the preferred landlord insurance form for long term rental homes because it usually provides broader protection for the dwelling. A Landlord DP3 policy is commonly written as an Open Perils policy for building. That means the policy can cover direct physical loss to the dwelling. With Open Perils policy coverage everything is covered, unless excluded. So, you know exactly what to expect. That is an important difference when compared to the more basic Dwelling Policy Form 1 (DP1). The DP1 is a Named Perils coverage policy. Where the question becomes “Is this loss specifically covered?”

For many Texas landlords, DP3 coverage feels more practical because rental homes face many of the same risks as owner occupied homes, including wind, hail, fire, sudden water damage and liability. Two policies can look similar on price, Dwelling A can be the same, deductible similar. And then differ greatly on roof payment method, water coverage, and perils insured against.

What does a DP3 policy usually cover?

A DP3 landlord policy may include:

The rental dwelling
Detached structures
Loss of rental income after a covered claim
Landlord owned appliances or furnishings
Personal liability
Medical payments
Optional water backup
Optional equipment breakdown
Optional service line, or other endorsements

Each company offers landlord insurance differently, so the actual policy form and endorsements matter. That is why we encourage landlords to compare the policy details, not only the premium, with your agent.

What is a DP1 landlord policy?

A Dwelling Policy Form 1 (DP1) policy is usually a more basic dwelling policy. It is commonly written on a Named Perils basis, meaning it only covers the causes of loss specifically listed in the policy.

Common DP1 covered perils may include:

Fire
Lightning
Windstorm
Hail
Explosion
Smoke
Aircraft
Vehicles
Riot or civil commotion

Some DP1 policies may allow endorsements for additional coverage, but you should not assume vandalism, water damage, theft, falling objects, or loss of rent are automatically included. A DP1 policy may be the right fit for a certain situation, but it is not the same as a DP3 policy. This is where many landlords get surprised.

Why the difference matters in Texas

Central and South Texas often are impacted by hail, high wind, severe thunderstorms, freezes, brush and wildfires, or even flooding. Texas insurance policies may have separate wind and hail deductibles, roof settlement rules, and water damage limitations. A lower priced policy may have a higher deductible, a depreciated actual cash value roof settlement, or missing water coverage. For a landlord, that can affect cash flow quickly.

What property policies usually do not cover in Texas

Neither DP3 nor DP1 should be treated as coverage for everything or for maintenance issues.

Common exclusions or limitations may include:

Wear and tear
Rot, deterioration
Insects or rodents
Intentional damage by an insured
Repairs
Tenant personal property
Earthquake
Flood

Your tenant’s belongings are not covered

Landlord insurance protects the landlord’s interest in the property. It does not cover the tenant’s furniture, clothing, electronics, or other personal belongings. Landlords should require tenants to carry renters’ insurance in the lease. This helps reduce confusion after a claim and helps tenants understand their own responsibility for property and liability.

Questions Texas landlords should ask before buying

Is the policy open perils or named perils?
Does the dwelling settle at replacement cost or actual cash value?
How is the roof covered after wind or hail?
Is there a separate wind and hail deductible?
Is loss of rent included?
Is tenant vandalism covered?
Is sudden and accidental water damage included?
Is water backup included or optional?
Is foundation water damage available?
Is service line coverage available?
Is ordinance or law coverage included?
Does the policy cover landlord owned appliances?
Does the property need flood insurance?
Are short term rentals allowed?
Does the policy match the lease and property use?

Why work with an independent Texas insurance broker?

A landlord policy is not one size fits all. As an independent insurance agency, Britton and Britton can compare options from multiple insurance companies. We can help you review price, coverage form, deductibles, roof settlement, water coverage, loss of rent, and liability.

Our job is not to hand you the cheapest quote and hope for the best. Our job is to help you understand your options. So you can make the best choice for your insurance needs.

Buying your first rental property, renewing an existing landlord policy, or comparing DP1 and DP3 quotes? Contact us for a Texas landlord insurance review. We can help you compare coverage and shop available options for your rental property.