Coinsurance

How it works

Property insurers price a policy on the assumption that you’ve insured close to the full value of what you own. A coinsurance condition enforces that. Your policy names a percentage, often 80%, 90% or 100%. If your limit falls below that percentage of the property’s value at the time of the loss, the insurer pays only part of the claim, even if the claim itself is well under your limit.

The usual calculation:

1. Multiply the property’s value by the coinsurance percentage. That’s the limit you should carry.
2. Divide the limit you carry by the limit you should carry.
3. Multiply the loss by that fraction, then subtract your deductibleDeductibleA deductible is the amount you pay toward a covered loss before your insurance pays, usually subtracted from the claim payment.Read the definition.

The value is measured on your policy’s valuation basis, either replacement costReplacement costReplacement cost is a way of valuing property losses that pays to repair or replace damaged items with new ones of like kind and quality, without subtracting depreciation.Read the definition or actual cash valueActual cash valueActual cash value (ACV) is what damaged property was worth when it was lost, usually its replacement cost minus depreciation for age and wear.Read the definition, and the payment can’t exceed your limit. Coinsurance in a property policy is a different idea from coinsurance in health insurance, where you pay a share of each bill.

Example

How to avoid a shortfall

Revisit your business personal propertyBusiness personal propertyBusiness personal property (BPP) is the movable property your business owns and uses, such as equipment, furniture, inventory and supplies, as covered by a commercial property policy.Read the definition limit when you buy equipment, expand or stock up for a busy season, and base it on what it would cost to replace everything today. Some policies offer an agreed value option that suspends the coinsurance condition for a set period, subject to the insurer’s approval of your values. The commercial property page explains how to pick a limit that matches what it would cost to replace.