Buy the Right Amount of Property Insurance

Most property policies have severe penalties for under-insurance. The amount of coverage you buy depends on the valuation of the property. Most businesses need replacement cost coverage – insurance designed to pay for the replacement of your property after an insured peril with new materials, current cost of labor, etc.

Your agent can help you with estimating the replacement cost of your buildings.

Determining the value of contents is tougher. I recommend you go through your locations room by room and count thousands of dollars in value. (Desk and chair, $1,000. Three file cabinets, $1,000. Computer and printer, $2,000.)

Remember, coinsurance is a penalty provision. It never helps you. It can only hurt at the time of a loss.

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Example: Underinsured Building With Coinsurance
Property Value: $1,000,000
80% Coinsurance Clause (Requires That $800,000 Of Insurance Be Purchased)
Amount of Insurance: $750,000
Amount of Fire Loss: $75,000
Loss Calculation: What You Bought, Divided By What You Should Have Bought, Times The Amount Of The Loss.
Claim Payment = $750,000 Divided By $800,000 Multiplied By $75,000 = $70,313
Coinsurance Penalty = $4,687
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Example: Correctly Insured Building With Coinsurance
Property Value: $1,000,000
80% Coinsurance Clause (Requires That $800,000 Of Insurance Be Purchased)
Amount of Insurance: $850,000
Amount of Fire Loss: $75,000
As The Amount Of Insurance Is More Than The $800,000 That Coinsurance Requires The Loss Payment Is The Full $75,000 (Less Any Deductible)
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Most insurers will eliminate the coinsurance clause on your property insurance. Many carriers will add a clause to the policy agreeing that the amount of insurance you purchased meets the coinsurance clause – called the agreed amount endorsement.

Work with your agent to eliminate any coinsurance clauses from your policies.