What is Co-Insurance: How Does it Affect Your Property Policy?
By: Kathleen Murray (Capstone Brokerage Client Advocate) March 3, 2015
The co-insurance clause in a property policy is one of the most confusing and misunderstood terms for policy holders. Co-insurance under a property policy is defined as: “the sharing of risk between an insurer and the insured” which is normally expressed as a percentage. Simply stated, the co-insurance clause affects the amount payable in the event of a partial or total loss.
Building insurance, contents coverage, computer coverage, inland marine policies, tool and equipment floaters will almost always have the co-insurance clause ; however, contained in the clause is also a penalty that is applied which will reduce the claim payment.
The essential factor that must be understood in co-insurance is the penalty clause. The co-insurance section of your policy gives your insurance company the right to penalize you by reducing the amount of your claim payment in the event the amount of the insurance you purchased is inadequate. In most policies, the standard amount of insurance that must be purchased is equal to 80% of the replacement value of the property.
The Insurance Policy Language
Who really wants to read their insurance policy?
It actually helps to see the actual wording of the policy to clarify the concept of co-insurance. In the event of a claim, the policy holder must satisfy the specified criteria outlined in the terms and conditions of the property policy.
If a Co-insurance percentage is shown in the Declarations, the following condition applies:
a. “We will not pay the full amount of any ‘loss’ if the value of the covered property at the time of the ‘loss’ times the Co-Insurance percentage is greater than the limit of insurance for the property. Instead, the carrier will pay using the following formula:
As an example: a building with a $1,000,000 value and a policy with an 80% co-insurance clause must be insured for at least $800,000. If the policyholder decides to buy $600,000 of insurance and a $200,000 fire occurs, the claim is calculated by dividing what was purchased ($600,000) by what should have been bought ($800,000). The result in this scenario is 75%. The factor is multiplied by the amount of loss. The calculation works out: $200,000 x .75 = $150,000. The policy holder will receive $150,000 (less any deductible) for the $200,000 claim.
The bottom line is that a policy holder must make sure their coverage meets the co-insurance requirement. This is why a policy holder deserves and should expect to work with an educated and trusted insurance consultant.
Categories
- Benefits Resources
- Bonding
- BOP
- Business Insurance
- Commercial Auto
- Commercial Property
- Company News
- Construction
- Crime Insurance
- Cyber Insurance
- Directors & Officers
- Employee Benefits
- Employment Practice Liability Insurance
- Entertainment
- General Liability
- Health Insurance
- Healthcare
- Healthcare Reform
- Homeowners Insurance
- Hospitality
- Manufacturing
- Medical Malpractice
- Mining & Energy
- Nightclubs
- Personal Auto
- Personal Insurance
- Professional
- Restaurants
- Retail & Wholesale
- Risk Management Resources
- Safety Topics
- SBA Bonds
- Security
- Seminars
- Technology
- Tourism
- Transportation
- Uncategorized
- Workers Compensation
Archives
- May 2021
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- November 2018
- September 2018
- August 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- February 2013
- November 2011
- October 2011
- September 2011
- July 2011
- June 2011
- March 2011
- November 2010
- October 2010
- September 2010
- April 2010
- February 2010
- November 2009
- October 2009
- November 2008
- August 2008