Difference in Conditions Insurance: An Overview

Typically, insurers only pay for damage or loss caused by a named peril, situation, or event. For instance, unless your business insurance policy has flood listed as one of the covered perils, you'll need a separate insurance policy to protect yourself from the financial losses associated with flood damage. It is worth noting that just because you have insurance coverage does not mean you're fully covered from the named perils. That's where a difference in conditions (DIC) policy comes in handy. This policy is ideal for large organizations seeking protection from risks excluded from standard insurance policies, especially earthquake, and weather-related flooding.

What Is Difference in Conditions (DIC) Insurance?

According to the International Risk Management Institute (IRMI), a difference in conditions (DIC) is a type of property insurance that increases coverage limits on covered perils and provides extended coverage for certain risks excluded from standard insurance policies. For example, suppose your primary property insurance only provides up to $50,000 worth of coverage for fire damage. In that case, you can purchase a DIC policy for extra coverage, particularly if you have high-value equipment in your company. Insurance companies usually sell it as a stand-alone policy, although you can also purchase it as an endorsement depending on your insurer's terms and conditions. Before you can purchase a DIC policy, you must have a primary insurance policy.

Most policies on the market today cover predictable and well-defined perils. This is because such perils are generally easier to underwrite compared to infrequent and catastrophic perils. For instance, it is generally easier to determine the size of damage that can occur from a leaking pipe than what a 20-foot flood can cause. As mentioned earlier, the DIC policy provides additional coverage for perils excluded from the standard insurance policies. Its purpose is to increase your coverage limits and protect you from catastrophic perils such as floods and earthquakes, which are usually not covered by standard property policies.

Because of the nature and purpose of a DIC policy, not everyone needs this policy. In fact, you should only purchase this policy if you're looking to protect your home or business from catastrophic events or increase your coverage limits without adding endorsements on your standard insurance policies.

How Does DIC Work?

If you own a large company and have property insurance that excludes weather-related flooding, you should consider purchasing a suitable DIC policy. While a flood insurance policy can also work just fine in this case, DIC does more than just protect your property from flooding. For instance, if you run a construction firm, this policy can help bridge the coverage gap between your business insurance and contractors' insurance.

Multinational firms also use a DIC to fill coverage gaps left between their local and master policies. Additionally, this coverage is highly flexible, and therefore, you can change or customize it based on factors such as the risk of activity, age, and equipment. For instance, if earthquakes are no longer part of your business risks, you can change your DIC policy to provide coverage against floods or other severe perils.

A difference in conditions policy can fill the coverage gaps in your standard property insurance so that you're not underinsured. To get a DIC policy that suits your unique business needs, contact our experts at Knight Insurance Services today.