Coverage guide

Dwelling fire policies

A dwelling fire policy is the form used when a house is not the owner's home. It is older, plainer and narrower than a homeowners policy, and it is the right answer more often than people expect.

When the homeowners form stops fitting

A homeowners policy assumes owner occupancy. Several ordinary situations break that assumption:

• The house is rented to a tenant, long term or seasonally.
• It was inherited and stands empty while an estate is settled.
• The owner has moved and is holding the property rather than selling.
• It is mid-renovation and nobody is living in it.
• It was bought as an investment and has always been let.

In each case continuing to carry a homeowners policy on a property nobody lives in creates a risk that a claim is disputed on occupancy grounds. That is a poor way to discover the distinction.

The three forms

Dwelling policies are written on standardised forms, usually described as basic, broad and special. The basic form is narrow — fire, lightning and a short list of named perils, with extended coverage available. The broad form adds further named perils, commonly including falling objects, weight of ice or snow, and certain water damage from plumbing systems. The special form is the widest, covering direct physical loss except what is specifically excluded, which is the same structure a homeowners policy uses for the building.

The difference between them is substantial and the premium difference is often modest. Ask which form is being quoted rather than assuming.

Actual cash value and the depreciation trap

This is the point that catches owners hardest. Many dwelling policies, particularly on the basic form and on older buildings, settle losses at actual cash value — replacement cost less depreciation — rather than at full replacement cost.

A twenty-year-old roof settled on that basis returns a fraction of what replacing it costs. The owner pays the difference. Replacement cost settlement is frequently available and should be asked about specifically, because the default is not always what an owner assumes it is.

What the policy does not do for the tenant

A dwelling fire policy covers the owner's building and, where selected, the owner's own property kept there — appliances, a supplied cooker, maintenance equipment. It does not cover the tenant's belongings, and it does not provide the tenant's liability cover. Tenants need their own renters policy for that, and many landlords now make it a condition of the lease. It is a reasonable thing to require, and it prevents an unpleasant conversation after a fire.

Fair rental value and liability

Two additions are worth having. Fair rental value replaces the rent that stops arriving while a damaged property is uninhabitable, which is frequently the larger part of a landlord's actual loss. Landlord liability responds when a tenant or a visitor claims the owner is responsible for an injury; it is not automatically part of every dwelling policy and often has to be added.

Who is actually named on the policy

Rental property is frequently held in a trust, a partnership or a limited company rather than by an individual, and the policy has to name whoever actually owns the building. A policy naming a person for a property owned by an entity, or the reverse, creates an argument about insurable interest at exactly the wrong moment. When ownership is transferred into a trust for estate planning — a common and sensible step — the insurance rarely follows automatically, and it should be updated at the same time as the deed.

The same applies to a lender. If a mortgage exists, the lender is normally named and must be told about a change of policy or carrier.

Vacancy is its own condition

Most property policies restrict cover once a building has stood vacant beyond a stated period, commonly around sixty days, and vandalism and water damage are usually the first things to fall away. A property between tenants, awaiting probate, or under long renovation may need a specific vacant-property policy or endorsement. Telling the insurer that a house is empty is far cheaper than not telling them.

The California Department of Insurance publishes residential insurance consumer guides covering how residential property cover is structured and settled.

※Where this page comes from

• California Department of Insurance — Residential insurance consumer guides