What Is DP1, DP2, and DP3 in Insurance?
They're levels of dwelling fire coverage. DP1 covers basic perils at actual cash value, DP3 covers the most.
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Why This Shows Up Now
A dropped homeowner often gets offered a DP1 or DP3 dwelling fire policy instead of standard homeowners insurance. These policies exist for houses that standard carriers turn away, often over age, condition, or claims history.
DP1 Pays Less
DP1 covers a short list of named perils, usually fire, lightning, and windstorm among a few others. It pays actual cash value, so depreciation gets subtracted. A twenty-year-old roof damaged by wind might get paid out at a fraction of what a new one costs.
DP3 Covers More
DP3 insures the house on an open-perils basis. It covers any cause of damage except what's specifically excluded, and it usually pays replacement cost on the dwelling. It's the closest a dropped homeowner can get to the coverage they had before.
Your Lender's Requirement
A mortgage lender requires dwelling coverage at a level tied to the loan. DP1's actual cash value payout can fall short of what's needed to rebuild. Check whether the lender accepts a DP1 policy, or whether only DP3's replacement cost coverage will satisfy the loan.
A DP1 policy at actual cash value and a DP3 policy at replacement cost can price out very differently once you factor in what a roof or rebuild actually costs today. Some insurers writing dwelling fire policies will offer DP3 for houses others turn away, and terms vary on which perils are covered and how claims get paid. Comparing offers before the deadline on your letter shows whether a better option exists.
What About DP2, and Liability Coverage
DP2 sits between the other two. It names a longer list of covered perils than DP1, often including things like falling objects, weight of snow, and damage from a burst pipe, but it's still a named list rather than open perils. Anything not on that list isn't covered. DP2 usually pays replacement cost on the dwelling rather than actual cash value, which is the main reason it costs more than DP1. Not every insurer writing dwelling fire policies offers all three tiers, so the choice on the table might be DP1 versus DP3 with nothing in between.
One thing all three tiers tend to share is what they leave out. A dwelling fire policy is built around the structure. It often doesn't include liability coverage, the part of a standard homeowners policy that pays if someone gets hurt on the property and sues. If a dwelling fire policy is the offer, check whether liability is included or sold as a separate endorsement. A lender doesn't require liability coverage, so it's easy for a policy to skip it entirely.
Personal property coverage works the same way. Standard homeowners insurance pays to replace belongings damaged in a covered loss. Some dwelling fire policies include a limited amount of this coverage, others don't include it at all, and some sell it as an add-on. The declarations page of any offer will say what's included and what isn't, and it's worth reading line by line rather than assuming it matches what the old policy covered.
None of this means a DP1 or DP2 policy is a bad fit. For a rental property or a house someone doesn't occupy full time, the narrower coverage and lower cost can make sense. For the house someone lives in, the gaps matter more, and they're worth weighing against what each policy actually costs once the roof's age and the rebuild cost are factored in.
Can a DP1 or DP3 Policy Be Switched Later
Nothing about a dwelling fire policy is permanent. It's usually a stopgap, something bought to satisfy the lender and keep the house covered while the cause of the non-renewal gets fixed or ages out of the insurer's view. A roof that got someone dropped at fifteen years old won't get them another policy at sixteen, but a new roof can change that. Claims history thins out over time too. Most insurers look back three to five years, so a claim that caused a non-renewal may stop counting against an application once that window passes.
Each renewal of a DP1 or DP3 policy is a chance to ask again whether standard homeowners insurance is back on the table. The policy doesn't have to run for years before that's worth checking. A year after a new roof, or a year after an old claim drops off the lookback period, is a reasonable point to see what else is available. Rates and underwriting rules shift too, and an insurer that wasn't writing in the area last year might be again.
What changes the answer is usually one specific thing, not time alone. A new roof, new wiring, a paid-off claim, or the house getting reoccupied full time after sitting vacant are the kinds of changes that move a house from dwelling fire territory back into standard eligibility. Keeping records of what was fixed and when makes the case when applying again. A dated invoice for a new roof says more than a claim that it's done.
None of this changes what to do right now. The deadline on the cancellation or non-renewal letter still needs a policy in place by then, and a DP1 or DP3 offer that meets the lender's requirement is what closes that gap. Revisiting the coverage later is a separate decision, made once the immediate deadline is handled and there's time to compare options without a clock running.
Before You Decide
Check the declarations page of any DP1 or DP3 offer against your lender's letter. Confirm the dwelling coverage meets the required amount, and see whether liability and personal property are included or sold separately.
