A coinsurance clause is a provision commonly found in both personal and commercial insurance policies that determines the share of expenses that you, as the policyholder, is responsible for in the event of a claim. This clause requires the policyholder to maintain a certain percentage of the insured property’s value as coverage.
Coinsurance Example
Let’s say you have a home insurance policy with an 80% coinsurance clause. This means that you must insure your property for at least 80% of its total value. If you fail to meet this requirement and only insure it for, let’s say, 60% of its value, you could face financial consequences. In the event of a claim, the insurance company will only cover 60% of the total expenses, leaving you responsible for the remaining 40%.
The purpose of a coinsurance clause is to prevent underinsurance and discourage policyholders from undervaluing their property. It ensures that the policyholder bears a fair share of the risk and encourages them to accurately assess the value of their property when obtaining insurance coverage.
Additionally, a coinsurance clause can also affect the amount of reimbursement you receive in case of a partial loss. If you experience damage to your insured property that does not exceed the coinsurance requirement, you will generally receive the full amount of your claim. However, if the damage exceeds the coinsurance requirement, you may only receive a proportionate amount based on the percentage of insurance coverage you maintained.
Here’s why we don’t like coinsurance
First, coinsurance can lead to financial consequences for policyholders who fail to meet the required percentage of coverage. If the insured property is underinsured, the policyholder may be responsible for a larger portion of the expenses in the event of a claim. This can result in unexpected financial burdens that you as the policyholder may struggle to afford.
Secondly, coinsurance can make it difficult for policyholders to accurately assess the value of their property. Determining the correct percentage of coverage can be challenging, especially for unique or high-value properties. If the policyholder underestimates the value of their property and experiences a loss, they may not receive sufficient reimbursement to fully recover financially.
Coinsurance clauses can create confusion and complexity within insurance policies. The calculations involved in determining the appropriate coverage percentage can be complex, and policyholders may struggle to understand the implications and consequences of the coinsurance clause. This lack of clarity can lead to misunderstandings and disputes between the policyholder and the insurance company.
It’s always important to carefully review your policy and seek guidance from insurance professionals like our team at Blue Marsh Insurance. We can help you understand your policy options.
A little more about Blue Marsh Insurance…
When he founded Blue Marsh, Tom Davenport wanted to create a different kind of insurance company. One that’s built on personal relationships and a local presence. One where you, the customer, feel more like a friend.
As an independent insurance agency, Blue Marsh Insurance represents a carefully selected group of financially strong, reputable insurance companies. Therefore, we are able to offer you the best coverage at the most competitive price.
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