Q

What is a difference in conditions policy?

A

Difference in conditions (DIC) insurance is designed to cover losses that aren’t covered under a standard homeowners insurance policy.

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Difference in conditions (DIC) insurance is a policy designed to cover causes of damage or loss that aren’t covered by your regular homeowners insurance, including earthquakes, flooding, and landslides. 

If you have a Fair Access to Insurance Requirements (FAIR) Plan or another type of policy with more limited coverage, you can pair it with a DIC policy to fill in necessary coverage gaps. It’s common for residents in high fire risk areas of California to get fire and windstorm coverage with a California FAIR Plan and pair it with DIC policy that covers water damage, theft, and liability. 

Key Takeaways

  • Difference in conditions (DIC) insurance is intended to cover catastrophic perils that are not covered by standard insurance policies.

  • DIC policies are offered by both traditional insurers and excess and surplus insurance companies that specialize in covering homes in high-risk areas.

  • Homeowners typically purchase these policies alongside a FAIR Plan or similar policy to duplicate the coverage found in standard homeowners insurance.

How does difference in conditions insurance work?

DIC policies are traditionally purchased by businesses and larger organizations to cover natural disasters that aren’t typically covered under a normal commercial property policy, like flooding, earthquakes, and landslides. This allows business owners to have all of their catastrophe coverages in one place rather than having to purchase individual policies.  

Homeowners generally don’t have the need for this kind of DIC policy — earthquake coverage can often be added on to homeowners insurance policies or purchased through the California Earthquake Authority; and flood insurance is typically purchased through the National Flood Insurance Program (NFIP)

Instead, residential DIC policies are most often used to complement non-standard home insurance with less coverage than traditional policies, like excess and surplus (E&S) insurance or state FAIR Plans. In these situations, difference in conditions insurance fills in coverage gaps left by the main policy to create a more traditional home insurance policy. 

Bear in mind that DIC policies sold by E&S insurers aren’t subject to the same underwriting and rating requirements as admitted insurers. While the lack of regulation allows DIC insurers to take on more risk than admitted companies, policies are generally pricier and don’t provide the same comprehensive level of coverage.

Difference in conditions insurance also often comes with high out-of-pocket deductibles on claims. In fact, it’s not uncommon for a DIC policy deductible to be $10,000 or more, meaning that there’s a high cost when actually using the coverage. 

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What does a difference in conditions policy cover?

Traditional difference in conditions insurance covers what a standard insurance policy doesn’t, including:

  • Earthquakes: Standard homeowners insurance doesn’t cover earth movement, including damage directly caused by earthquakes. Many surplus carriers cover direct earthquake loss in DIC policies.

  • Flooding: Homeowners insurance covers internal water damage after a burst pipe or explosion, but won’t cover damage caused by natural flooding. While most residential flood insurance is purchased through the NFIP, this coverage is also available in DIC policies. 

  • Mudslides: Neither home nor flood insurance will cover damage caused by mudslides or mudflow. If you live in an area at risk of mudslides, like at the bottom of a slope or canyon, consider mudslide coverage via a difference in conditions policy.

  • Landslides: Landslides are typically excluded by both home and earthquake insurance, so residents of landslide hazard areas should consider a DIC policy with landslide coverage.

DIC policies are typically only purchased if your home is at risk of two or more of these catastrophes. If you only need flood insurance, for example, then you’ll be best suited by an NFIP policy. If you only need earthquake insurance, look into an endorsement or separate earthquake policy with your insurer.  

DIC insurance and the CA FAIR Plan: What you need to know

Since many major insurance companies in California are no longer insuring houses in fire-prone areas of the state, residents have turned to the California FAIR Plan, a nonprofit program that provides insurance to homeowners that can’t get coverage on the private market.

Although the CA FAIR Plan is a fine last-resort option if you’re getting turned away by standard insurers, the plan only covers losses related to fire, smoke, lightning, windstorms, explosions, and vandalism, but won’t cover water damage and theft. Additionally, FAIR Plan policies don’t include personal liability coverage, a coverage included in most standard homeowners insurance policies.

To fill in those coverage gaps, it’s common for California residents to pair their FAIR Plan with a difference in conditions policy.

DIC insurance companies

If you have a CA FAIR Plan but you’d like more protection, consider increasing your coverage with a DIC policy. There are several standard insurance companies that offer difference in conditions insurance in the state of California, including: [1]  

  • Aegis

  • AIG

  • Cincinnati Insurance

  • Farmers

  • Kemper

  • Liberty Mutual

  • Nationwide

  • Pacific Specialty

  • State Farm

  • Stillwater

  • Travelers

Keep in mind that these DIC policies are only intended to complement FAIR Plans and will not provide coverage beyond that of a standard home insurance policy. If you’re interested in DIC insurance for catastrophe perils, you’ll likely need to get coverage with an excess and surplus insurance company.  

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