Quick answer: A homeowners policy is designed for a home you live in. When you rent a property to tenants, insurers generally write it on a dwelling policy, often called landlord insurance, instead. The North Carolina Department of Insurance explains that dwelling policies come in three forms: DP-1 (basic, named perils, usually actual cash value), DP-2 (broad, named perils, typically replacement cost) and DP-3 (special form, open perils for the building). Dwelling policies typically do not include liability coverage, so landlords usually add it by endorsement or separate policy. Tenants need their own renters insurance for their belongings.
Turning your home into a rental, or buying a property to rent out, changes how insurers see the risk. You are no longer the person living there every day, tenants bring their own belongings and habits, and lost rent becomes a financial exposure. A standard homeowners policy is not built for that situation.
This guide compares homeowners insurance with landlord (dwelling) coverage and explains the three dwelling forms. For the fundamentals of homeowners coverage, start with our complete homeowners insurance guide.
Sources: North Carolina Department of Insurance, “Dwelling Policies”; Insurance Services Office (ISO) dwelling property program (DP 00 01, DP 00 02, DP 00 03), as commonly used by insurers; National Association of Insurance Commissioners (NAIC) consumer guidance. Forms, endorsements and rules vary by state and insurer. Review your own policy. This is general information, not insurance or legal advice.
Why a Homeowners Policy Usually Doesn't Fit a Rental
Homeowners policy forms such as the HO-3 are written for owner-occupied homes. They assume you live at the property and they package property, personal liability and loss-of-use coverage for the household. The North Carolina Department of Insurance (NCDOI) notes that a dwelling fire policy is “typically used for someone that does not make the property their primary residence.”
NCDOI lists situations where a dwelling policy may be the right fit:
- vacation homes;
- vacant homes;
- seasonal homes;
- secondary homes;
- rental properties; and
- older homes.
If you move out and rent your house without telling your insurer, you risk a claim dispute, because the property’s use no longer matches what the policy was written for. Tell your agent or insurer before a tenant moves in.
The Three Dwelling Policy Forms
DP-1: Basic Form
NCDOI describes the DP-1 as a named perils policy that typically covers fire, lightning and internal explosion. When a premium for extended coverage is shown on the declarations, perils such as windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke and volcanic eruption can be added, and vandalism or malicious mischief may also be available.
A DP-1 can also cover other structures, personal property usual to the occupancy of the dwelling, fair rental value, debris removal, and improvements, alterations and additions. Claims are settled on an actual cash value basis, though NCDOI notes that replacement cost may be available for an additional cost.
DP-2: Broad Form
The DP-2 is also a named perils policy, but the list is longer. NCDOI’s list includes vandalism and malicious mischief, windstorm or hail, burglary damage, weight of ice and snow, falling objects, freezing, sudden and accidental damage from artificially generated electrical current, and accidental discharge or overflow of water or steam, provided the building was not vacant for 60 days before the loss.
Unlike the DP-1, the DP-2 typically settles claims on a replacement cost basis. Loss of rent, additional living expenses, collapse, debris removal and improvements coverage may also be included.
DP-3: Special Form
NCDOI calls the DP-3 the most comprehensive dwelling fire coverage available. It is an open perils policy for real property, meaning the dwelling and other structures are covered for all causes of loss except those the policy excludes. Personal property inside is still covered on a named perils basis.
Typical DP-3 exclusions listed by NCDOI include neglect, intentional loss, mold, rust and rot, constant or repeated leakage or seepage, earth movement such as earthquakes, wear and tear, and damage from birds, rodents, insects or domestic animals.
Side-by-side comparison
| Feature | DP-1 Basic | DP-2 Broad | DP-3 Special |
|---|---|---|---|
| Building perils | Named, limited list | Named, broader list | Open perils, subject to exclusions |
| Personal property perils | Named | Named | Named |
| Typical settlement | Actual cash value | Replacement cost | Replacement cost |
| Fair rental value | Available | Available | Available |
| Liability | Generally not included | Generally not included | Generally not included |
For a deeper look at settlement methods, read our guide to replacement cost vs. actual cash value.
Homeowners vs. Landlord Coverage at a Glance
| Coverage area | Homeowners policy (e.g., HO-3) | Landlord dwelling policy |
|---|---|---|
| Who lives there | You, as owner-occupant | Tenants, or the home is seasonal or vacant |
| Dwelling | Covered | Covered under Coverage A |
| Your belongings | Broad coverage for household contents | Limited to property usual to the occupancy, such as appliances or furnishings you provide |
| Loss of use | Additional living expenses for your household | Fair rental value for lost rent |
| Personal liability | Included | Usually added by endorsement or separate policy |
| Tenant belongings | Not applicable | Not covered; tenants need renters insurance |
You can compare homeowners forms in our article on HO-3 vs. HO-5 homeowners policies.
Fair Rental Value: Protecting Your Rental Income
In the ISO dwelling forms, fair rental value is the coverage that pays the rent you lose when a covered loss makes the property unfit to live in. In general terms, it pays the fair rental value of the part of the dwelling rented to others, less expenses that stop while repairs are underway, for the time reasonably needed to repair or replace the damage.
Fair rental value coverage is tied to a covered physical loss. It is not a substitute for a tenant who simply stops paying rent or a unit that sits empty between leases. Those risks are business risks, not property losses.
Liability: The Gap Many Landlords Miss
Dwelling policies typically do not provide liability coverage, according to NCDOI. For a landlord, liability exposure is real. A visitor or tenant could claim that an unsafe stair, railing or walkway on your property caused an injury.
Ways landlords typically address this:
- Personal liability endorsement added to the dwelling policy, where the insurer offers it.
- Separate liability policy for rental property owners.
- Umbrella policy above the underlying liability limits. Many umbrella insurers require specific underlying limits first. See our guide to umbrella insurance basics.
Ask your agent how your liability coverage applies to each rental property you own.
What Tenants Must Insure
A landlord’s dwelling policy covers the building and the landlord’s own property. It does not cover the tenant’s furniture, clothing or electronics, and it does not provide the tenant with liability protection. That is what renters insurance (often an HO-4 form) is for. Many landlords require tenants to carry renters insurance and to show proof at lease signing. Our article on what renters insurance covers explains the policy from the tenant’s side.
Special Situations
Renting out part of your home
If you live in one unit of a duplex and rent the other, or rent a room in your house, your situation sits between owner-occupied and rental. Some insurers handle this on a homeowners policy with endorsements, others require a dwelling policy for the rented portion. Describe the arrangement precisely to your insurer.
Short-term rentals
Renting through short-term rental platforms raises different questions, because guests change frequently and the use can look like a business. Many standard policies limit or exclude coverage for short-term rental activity unless an endorsement or specialty policy is added. Confirm coverage before listing the property.
Vacant properties
Vacancy affects coverage. NCDOI’s description of the DP-2 shows that accidental discharge of water coverage depends on the building not having been vacant for 60 days before a loss. Many policies also restrict vandalism and glass coverage after a period of vacancy. If a rental will sit empty between tenants or during renovation, talk with your insurer.
Checklist: Converting Your Home Into a Rental
Owners who move out and keep their old house as a rental face the most common landlord insurance mistake: leaving the homeowners policy in place. Work through these steps before the first tenant’s move-in date:
- Call your insurer or agent and explain that the home will be rented, to whom (long-term tenant, family member or short-term guests) and starting when.
- Ask whether the current insurer writes dwelling policies, and request quotes for the DP form you want.
- Line up the new policy so it takes effect no later than the day the tenant moves in, with no gap between policies.
- Move your own belongings out or list any furnishings you are leaving behind, so contents coverage reflects what actually stays in the property.
- Arrange liability coverage for the rental and check that any umbrella policy recognizes the property.
- Update your lender, because most mortgage contracts require you to keep the property insured and name the lender on the policy.
- Add a renters insurance requirement to the lease.
Questions to Ask Your Agent
- Which dwelling form, DP-1, DP-2 or DP-3, are you quoting, and which perils are covered?
- Are losses to the building paid at replacement cost or actual cash value?
- What is the fair rental value limit, and how long will it pay?
- Is liability included, available by endorsement, or only through a separate policy?
- What vacancy conditions apply, and how many days of vacancy trigger them?
- Are water backup, ordinance or law, and other endorsements available?
- How does the policy treat short-term or furnished rentals?
Records Landlords Should Keep
Good records make claims smoother. Keep the lease, tenants’ proof of renters insurance, dated photos of each unit at move-in and move-out, receipts for appliances and furnishings you supply, and records of repairs and inspections. After a loss, these documents help show the property’s condition and the rent you were collecting.
How to Shop for Landlord Insurance
- Choose the form. Decide between DP-1, DP-2 and DP-3 based on the property’s value, age and your tolerance for uncovered perils.
- Set Coverage A to replacement cost. Estimate the cost to rebuild, not the market value of the property.
- Add fair rental value at an appropriate limit. Consider how long a major repair could take.
- Arrange liability. Use an endorsement, a separate policy or both, plus an umbrella if appropriate.
- Review endorsements. Water backup, ordinance or law, and other options may be available.
- Consider flood and earthquake. Dwelling forms generally exclude both, so separate coverage may be needed.
- Require renters insurance from tenants. Put it in the lease.
Premiums for rental properties reflect many of the same factors as homeowners premiums, plus occupancy. Our article on what factors determine your insurance premium explains the general drivers.
Common Mistakes Landlords Make
- Keeping a homeowners policy after moving out and renting the home.
- Assuming the dwelling policy includes liability.
- Choosing a DP-1 on an expensive property and discovering that losses are paid at actual cash value.
- Expecting fair rental value to cover nonpayment or vacancy.
- Not requiring tenants to carry renters insurance.
- Overlooking vacancy conditions during renovations.
Frequently Asked Questions
Can I use homeowners insurance for a rental property?
Generally, no. Homeowners policies are designed for owner-occupied homes. Tell your insurer before renting the property, because a dwelling (landlord) policy is usually required.
What is the difference between DP-1, DP-2 and DP-3?
DP-1 is a basic named perils form typically settled at actual cash value. DP-2 is a broader named perils form that typically pays replacement cost. DP-3 covers the building on an open perils basis, subject to exclusions.
Does landlord insurance include liability coverage?
Dwelling policies typically do not include liability, according to the North Carolina Department of Insurance. Landlords usually add it by endorsement or separate policy.
Does landlord insurance cover lost rent?
Fair rental value coverage can pay lost rent when a covered loss makes the property unfit to live in. It does not cover tenant nonpayment or ordinary vacancy.
Does my landlord's insurance cover my belongings as a tenant?
No. Tenants need their own renters insurance for belongings and personal liability.
The Bottom Line
Homeowners insurance protects the home you live in. Landlord insurance, written on a dwelling policy, protects a property you rent to others. Pick the DP form that matches the property’s value and risks, insure the building to replacement cost, add fair rental value and arrange liability separately if needed. Require tenants to carry their own renters insurance so every person and every belonging in the building is covered by the right policy.
