One type of insurance that you may not be familiar with is difference in conditions coverage. What is difference in conditions insurance? Often abbreviated as DIC, this type of insurance can protect your finances from a broader range of perils than a standard insurance policy. Although most homeowners won’t need or qualify for DIC coverage, large businesses may want to consider a DIC policy to fill coverage gaps.
What is difference in conditions (DIC) insurance?
A difference in conditions policy is an insurance policy that can help provide expanded coverage for your home or business if you live in a region that sees regular disasters.
The average homeowner does not likely need a DIC policy. Most homeowners are adequately covered by a standard HO-3 policy. But for business owners, especially those who own large businesses, DIC insurance can bridge the gap between what a standard business insurance policy covers and what they might face after a disaster.
How does difference in conditions insurance work?
Standard home and business insurance policies cover you against particular insurance perils. While you can buy fairly robust policies and add endorsements for even more coverage, standard insurance doesn’t cover everything. Homeowners insurance, for example, does not typically cover your home for flooding and earthquakes.
For homeowners, flood insurance and an earthquake endorsement or policy may be enough to get the missing coverage. For larger organizations, businesses and perhaps even luxury homes, DIC coverage can be a good option to fill in the gaps left by conventional policies. To find out if you could benefit from a DIC policy, talk to your insurance agent or broker and see what they have to say about your coverage. DIC coverage is flexible, and you may be able to find a policy that is specifically formulated to your own circumstances.
DIC insurance is generally written by surplus line carriers. Surplus lines carriers are often willing to take on higher risk than standard home insurance companies or business insurance companies, but the charges for this coverage may be quite high, and the deductible may be high as well. Having said that, if you live in an area where the risk of catastrophic damage is relatively high, you may want to consider this kind of coverage.
What a DIC policy covers
For business owners, who are the typical clients for DIC coverage, many natural disasters are covered by standard business insurance, including fire, windstorm and snow damage. Smaller-scale disasters, from theft to roof damage after a hail storm, are also typically covered by standard policies. Standard business insurance policies, in fact, cover you for the most common types of disasters that may strike, and they provide coverage for the majority of claims.
But there are some catastrophes that typical policies don’t cover. Flooding, for example, is a common insurance exclusion and requires you to purchase a flood policy to be protected. Earthquake insurance coverage is also not a part of regular business insurance policies. Each policy may have additional exclusions. Read your policy carefully and talk to your company to understand what coverage types you do and don’t have.
DIC insurance covers disasters beyond the named perils that are common in most business policies. Just like your home or business insurance, DIC insurance will have a deductible. Unlike the deductible on standard policies, a DIC deductible is likely to be relatively high.
Who needs difference in conditions insurance?
Most homeowners do not need difference in conditions insurance. An HO-3 or HO-5 homeowners policy will protect the majority of homeowners from the most likely perils they will face. However, if you live in an area that is at high risk of natural disasters or rare, catastrophic damage, your insurance agent may suggest that you consider DIC insurance.
DIC insurance is designed for business owners, especially large-scale business owners, who benefit from the increased coverage options of commercial property policies. In fact, DIC policies are most commonly seen with business properties, as they augment the coverage from a simple commercial policy. Construction companies, for example, often rely on DIC policies to ensure that they are covered while working on a project.
Frequently asked questions
Do I need landslide coverage?
That depends on your risk level. If you live on a slope or if your area is known for earth movements, you may want to consider DIC coverage, since landslides would not be covered by basic homeowners insurance. Ask your insurance agent if they offer an endorsement, or add-on, that covers your home and its contents following an earthquake, mudflow or landslide. But remember that mudslides — a mix of earth and rock (but very little liquid) — are generally not covered by any insurance policy.
Do all insurers offer difference in conditions insurance policies?
No. In fact DIC policies are usually provided by companies called surplus line carriers, which are companies that are designed to take on higher risk policies than the average homeowners or business insurance company. One primary supplier of such policies is FEMA’s National Flood Insurance Program (NFIP), which underwrites flood policies in the U.S. NFIP insurance may be available through your local carrier and would cover flooding and mudflow issues caused by flooding. Landslides and earthquakes, on the other hand, may be covered by DIC policies that you purchase separately from your regular business insurance.
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