Coinsurance In Property Insurance

This weekend I spent some time reviewing renewal policies for several clients. An issue jumped out that I have not mentioned in a while.

Coinsurance is a penalty clause in property insurance policies that requires a certain percentage of the property’s value to be insured.

Example: A building with a replacement cost of $1,000,000 and an 80% coinsurance clause must be insured for at least $800,000 (80% of the $1,000,000 value), or a penalty is assessed at the time of a loss.

For the insurance buyer, coinsurance is a bad thing. It can only hurt you in a loss.

Coinsurance can be removed from your building and contents coverage – it’s called agreed amount. Sometimes you can also add agreed amount to business interruption coverage.

Watch out for coinsurance in other policy sections too. If you have inland marine coverage or a separate section for computer coverage you may find coinsurance penalties “hidden” in the policy language.