Coinsurance provisions found in property policies require the insured to purchase and maintain a minimum percentage of the structures total insurable value. Policies lacking adequate limits of coverage at the time of a loss are subject to a penalty. The insured becomes a “co-insurer” of the loss thus the term, “coinsurance.”
To determine if your policy includes this provision, look for a percentage, such as 80%, 90% or 100% on the property insurance policy declaration page. This means that the limit of coverage that you have selected is at least equal to that percentage of the actual replacement value of what you are insuring.
Coinsurance clauses are found in many insurance policies, such as Commercial Property Policies including your building and business personal property, Scheduled Equipment Floaters, Flood and Homeowner Policies.
Example:
| Value of the building is: | $500,000 |
| Coinsurance: | 90% |
| Limit Purchased: | $300,000 |
| Deductible: | $500 |
| Amount of Loss: | $100,000 |
Step (1): $500,000 x 90% = $450,000 (minimum amount of insurance you should have to meet coinsurance requirement.)
Step (2): $300,000/$450,000 =.67
Step (3): $100,000 x.67=$67,000
Step (4): $67,000 less deductible $500 = $66,500 (amount the carrier will pay for loss.)
It is important to review the values on your policy and take into consideration the construction of the property as well as today’s construction costs. We can assist you in performing estimates for the replacement of your property. We can review the results compared to your present property insurance limits to ensure you choose the correct limits and that you are properly and comfortably insured to value.
Questions? Please contact your Rue Insurance service representative at 1-800-272-4RUE.
