Coinsurance – What Is it?

Stack of big binders with one labeled Q&A for Questions and AnswersSeveral reoccurring questions we hear are:

  • Why do I have to carry so much insurance on my property?
  • I can’t sell it for that much, why do I need to insure it for that much?

Or with personal property (aka contents) –

  • I can replace it for half that amount at the thrift shop.
  • I bought this furniture at the thrift shop, it’s not worth half that amount.

Many policies have what is known as a coinsurance provision. Coinsurance is the requirement between you and the company that you will maintain insurance to a certain amount. This is usually in the form of a percentage of the item to be insured and how it is insured: (RC) Replacement Cost versus (ACV) Actual Cash Value which is Replacement cost minus depreciation. In return the company agrees to reduce the premium.

But back to Why – In the event of a loss there is a penalty for not having the right percentage.

In basic terms, you are penalized to the percent of your deficit. So your building is across the street from the Fire Department so you only want to cover 50% of the full replacement value. Even if it is a partial loss you will get penalized 50%.

But what happens if it is not a fire but a tornado, or not a complete and total loss but a partial loss? The $20,000 claim now becomes a $10,000 out of pocket expense due to the coinsurance penalty.

But I bought my contents at the thrift shop; and you insured them (rightfully so) for the full replacement cost which means the office furniture and supply store. And why did you do that?  Well, that desk and set of chairs you bought 10 years ago might not be around anymore, and besides your business is now successful. Wouldn’t you want current up-to-date styles?

Find the right coinsurance solution for you

While it is your responsibility to establish the value of your property and select the amount of insurance for your policy, we can help with that decision and explain what you can do to avoid paying a penalty.

Want to learn more about the particular needs of your situation?  Call us! 214-265-1221