Not Insuring to Full Value Can Be Costly...

Co insurance is a funny thing, it is something that most brokers and agents don't discuss with their clients. It shows up on your policy next to your building, content, and income limits (it may show next to other items too). The insurance company's normally label it as Co, or Co-Ins and there is a percentage expressed next to it. It's not clear, and I'm not sure it's meant to be.

The stated percentage is the minimum proportion that you have agreed to insure to. In the event that you are insured for an amount below that percentage, then you have agreed to a payment of claim, in the same percentage to which you are insured. Still it's not very clear is it? So we'll use an example... A policy might read:

Building $100,000 - 90% Co-Ins.

This means that you have agreed to insure your building to $100,000, and you also agree that this amount is no less than 90% of the building's true value. Now let us suppose that the building is actually worth $200,000 and a person has decided that in order to save money on their premium, they will only insure $100,000, they have only insured 50% of the true value.

In the event that this individual were to experience a claim, the insurance company would invoke a co insurance penalty and only pay 50% of the claim. Even if the claim is a partial one, of lets say $50,000, the insurance company would only pay the proportion of the claim that the person insured, in this case 50% for a payout of $25,000.

There are remedies available to protect you. Ask your broker to arrange coverage on a "stated amount" basis. In this event you will be required to submit a Statement of Values showing that you've insured to full value, and the co insurance clause will be removed, and your limit of insurance will be as stated on your policy. Why have the clause removed if you've insured yourself fully? The reason is quite simple, if you are to acquire more property, you could throw yourself into a co insurance penalty situation without realizing it. Each individual case is different, take your policy out and review it and verify that the limits are adequate. In the event that they are not, or if you are not sure, contact your insurance broker and have them guide you through your options. When it comes to an insurance claim for your business, a co insurance penalty isn't a discussion you want to have, believe me, and it's easy to avoid.