Co-Insurance
It is very easy to get confused about the co-insurance provision in your insurance policy. Most insureds interpret co-insurance to be a form of deductible. This is not the case at all. Co-insurance is a penalty clause that is designed to prevent insureds from under-insuring their property in order to save premium dollars.
Example:
You own a building worth $1,000,000. Your property policy contains a 90% coinsurance clause. This means you must insure the building within 90% of its value in order to be covered for the full limit of insurance. 90% would equal $900,000.
You decide to insure the building for $750,000 in order to save a few hundred dollars on your insurance premium.
You suffer a loss to the building in the amount of $500,000.
Divide Limit of Insurance by Building at Coinsurance Limit.
$750,000 / $900,000 = .83
You would only be covered for $500,000 x .83 = $415,000. The property deductible would also be deducted from the loss amount.
Had you insured for at least $900,000, within the 90% coinsurance clause, you could have recovered the full $500,000 for the claim. Instead you are out of pocket $85,000.
Co-insurance typically applies to Buildings, Contents, and Loss of Income/Rents coverage. It is vitally important that review this coverage with your agent to make sure you recover fully from damage to your property.