What is Difference in Conditions (DIC) Coverage? And Why it Matters.

Your instinct might be to say yes. But, as it so happens, many standard insurance policies don’t protect you against catastrophic perils, such as earthquakes—and California sits directly on a fault line. For help recovering from severe perils, you need special coverage, called difference in conditions. 

Let’s take a look at what you should know about difference in conditions (DIC) coverage, especially as it applies to California.

What Is DIC Coverage?

DIC coverage essentially expands the coverage of your standard policy to cover perils not typically included. Ordinary, predictable perils are mostly covered, while perils that are infrequent or severe generally necessitate DIC coverage. 

DIC insurance focuses on perils that, while rare, result in severe losses. This is of particular concern to California residents, as this includes earthquakes and floods. You can work with an agent or broker to determine your needs, but given the unpredictability of these perils and how increasingly common some of them are in California, anyone with a business or residence within the state should strongly consider DIC coverage. 

Primary vs. Excess

Depending on the coverage you already have, your DIC policy could be primary or excess. It’s a primary policy if the perils it covers aren’t covered under another policy. It’s excess if your primary policy covers these perils but to a limited degree. Your DIC coverage then kicks in once your limits on your primary policy are reached.

To make this more concrete, let’s imagine an earthquake happens. You have a policy that covers earthquake damage up to $100,000, plus your DIC coverage for $2 million. The first policy is the primary; once it pays out its full amount, the DIC coverage kicks in to cover the rest, up to its $2 million limit.  In this case, the DIC policy is excess. If you didn’t have that first policy, the DIC policy is primary.

Who Needs DIC Coverage?

If you’re in an area prone to natural disasters, you likely need DIC coverage for your business. If you meet any of the criteria below, ask your agent or broker about a DIC policy:

• Your commercial property insurer doesn’t provide coverage for floods, earthquakes

• Your commercial property insurer does offer this coverage but at a very high cost

• You already have coverage for the natural disasters that concern you but you feel you need more coverage

And, if you don’t have an insurance agent feel free to give us a call at (209) 384-0727 and we’ll be happy to answer any of your questions.

Common Features of DIC Coverage

Every DIC policy is different as they can be tailored to meet your needs. However, there are some common elements you should understand before taking out a policy. These are:

• Covered perils: These are the natural disasters that the policy covers. This generally means any cause of loss that the policy does not name as excluded.

• Limits and Deductibles: In general, there will be limits set for each type of disaster covered by the DIC policy. There will also be a deductible set that the insured must meet before coverage kicks in. Expect the deductible to be much larger than what you see on a standard commercial policy. 

• Business Income and Extra Expenses: Many DIC policies will cover income loss and other expenses that result from physical damage to your property. 

• No Coinsurance Clause: The majority of DIC policies lack a coinsurance clause, which means you can insure your property for less than its full value without penalty, and insurance companies can decline full coverage due to the perceived risk.

If you’re worried about fully understanding your coverage needs or your DIC policy, consult with a California insurance agent or broker. They should be able to do a risk assessment for your business and come up with the right DIC policy for you. 

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Leap | Carpenter | Kemps Insurance Agency Can Help

At Leap | Carpenter | Kemps Insurance Agency, we know that complex insurance topics like difference in conditions coverage might make your head spin. Fortunately, our experienced insurance agents know how to review your existing insurance policies and walk you through any additional coverage—like difference in conditions coverage—that you might need. If you have questions about whether your current policies are really protecting you and your business, contact us today.