Coinsurance Hole In Coverage

I’ve just started the review of a new client’s coverage. There, on the first page was a glaring error – a coinsurance penalty. It may be the most common problem I see – aside from named insured issues…

Coinsurance is a penalty assessed at the time of a loss. It is the way insurers assure that insureds buy adequate limits of coverage.

The penalty takes away coverage by limiting a loss payout. For almost 30 years insurers have been removing the penalty by the use of the “agreed amount endorsement.” It is exceedingly rare for insurers to refuse to eliminate the penalty. The only time I see it is when the insurer thinks that the amount of insurance is inadequate. The insured then negotiates with the insurer and the problem is solved.

A coinsurance clause on building or on personal property tells me an agent is not aggressive enough – either with the insurance company or with their client.

Coinsurance can also be eliminated on loss of business income protection. Same deal. Get the insurance company to agree that the coverage amount is correct and they can remove the penalty.

Some property insurance policies hide coinsurance. Its quite common on inland marine (equipment) coverage and computer hardware coverage sections. Removing the penalty in these two areas is more difficult, though not impossible. Sometimes it just takes the agent asking a few questions.