Long-term rental property — why HO-3 will not cover it and you need a DP-3
By Severance Calculator Editorial · Updated
The problem
ISO HO-3 policies are written for owner-occupied dwellings. Once a homeowner moves out and rents the property to a long-term tenant, the HO-3 is materially misaligned: personal property coverage (Coverage C) is sized for an owner who no longer lives there, liability assumes owner-resident exposure, and loss-of-use does not contemplate lost rental income. Carriers can deny claims on grounds of material misrepresentation if the property has been rented without their knowledge. The correct form is DP-3 (Dwelling Property 3), a landlord policy.
The data
DP-3 differs from HO-3 in five ways: (1) Coverage C is minimal or optional (landlord owns no personal property at the unit beyond appliances); (2) Loss of Rents replaces Loss of Use; (3) Liability is configurable, often paired with a separate umbrella; (4) Vacancy clauses are different (DP-3 tolerates short tenant turnover gaps better than HO-3); (5) Premium is typically 15-25% higher than the equivalent HO-3 due to higher claim frequency on tenant-occupied properties. A $400,000 Coverage A HO-3 at $1,400/yr would be roughly $1,650-$1,750/yr as a DP-3.
What to do
If a property is rented out long-term and is not your primary residence, switch to a DP-3 landlord policy immediately. Require tenants to carry their own renters policy (HO-4) with at least $100,000 liability — make this a lease clause. Add Loss of Rents coverage equal to 12 months of expected rent. Consider an umbrella policy if you own multiple rentals. Notify your mortgage servicer of the occupancy change; mortgages often have owner-occupancy clauses too.