Under a DP-1 policy, how are losses to the dwelling and contents paid?

Under a DP-1 policy, losses to the dwelling and contents are paid on an actual cash value (ACV) basis. This means that when a covered loss occurs, the insurer will calculate the loss by taking into account the current value of the property at the time of the loss, minus depreciation. This approach reflects the wear and tear on the items over time, providing compensation that is typically lower than what might be received under replacement cost or agreed value methods.

Choosing this option is significant because policyholders must understand that they will not receive a full replacement cost for their dwelling or contents, but rather a value that takes depreciation into account. This could impact their financial recovery after a loss, making it critical for homeowners to be aware of how their policies define loss payments and consider whether they need to adjust their coverage to reflect the true replacement cost of their property.