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What’s the Difference Between a DP3 and a HO3?

A client had a secondary home insured with the DP3 that they just moved into on a fulltime basis. When talking with clients, what's the best way to explain the difference between a DP3 and HO3 homeowners policy?
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what’s the difference between a dp3 and a ho3?

Q: A client has their primary home insured with the DP3. It was previously a secondary home before they moved into it on a fulltime basis. From a sales perspective, what is the best way to compare the DP3 and HO3 homeowners policy?

Response 1: There are many differences that cannot all be easily addressed here. However, probably most important, the DP3 is a property form and does not include liability coverage unless added by endorsement. Even if you add the personal liability endorsement, the coverage under that endorsement won't be as broad as the liability coverage provided under the HO3. 

But just looking at the property side:

  • The HO3 gives you 100% of the personal property limit worldwide—the DP3 limits off-premises personal property to 10%.
  • There is no theft coverage under the DP3. You might be able to add some limited theft coverage by endorsement, but it is not as broad as the HO3.
  • There are some types of property that may be subject to special limits, where under the DP3 they are simply not covered.

In short, the HO3 was designed to provide broader coverage for the homeowner who lives in their house. The HO3 has the “bells and whistles" that the DP3 does not. If you tried to endorse all the extras onto a DP3, it would probably end up more expensive than an HO3. 

Last, but not least, the HO5 is a much more comprehensive form and should be sold instead of the HO3 whenever possible.

Response 2: Many discussions of this subject can be found through a quick internet search. Here's a link to just one very simple one: Homeowners Insurance Vs. Property Dwelling Insurance. It is likely that the insurers you represent can provide materials that go into more depth and relate to their own products.

If you are a licensed insurance producer, I find it a bit startling that your education and experience—and presumably your ability to pass a licensing examination—did not prepare you to address this with ease.

Response 3: This is your client so you would know their exposures. I would use some concrete examples of where the DP3 form is lacking or limiting coverage for those exposures and how the HO3 form provides superior coverage.

Response 4: Prepare a side-by-side coverage analysis of the two policy forms' features. HO policies are typically dressed up to respond to the activities of the insured persons for both property and liability.

Response 5: An HO3 provides better perils for personal property—notably theft coverage which is optional on a DP3 and not always available. DP forms often don't provide replacement cost valuation for personal property either. 

Response 6: If you're talking about ISO forms, there is not a lot of difference other than the HO3 has most coverages built in and the DP3 does not. Usually, the main difference is price. The rating structure of a DP3 is higher because the premises don't have to be owner occupied.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

Friday, April 21, 2023