What is Coinsurance?
The first time that many hear the phrase “coinsurance” is in a letter from their insurance carrier after a loss. Many policyholders are shocked to learn for the first time that they will not receive the full value of their claim due to the policy’s coinsurance provision.
Coinsurance provisions can be confusing for both the policyholder and the insurance adjuster and your insurance company may not correctly apply the provisions. It is important to understand how coinsurance works to ensure that you are properly and fairly compensated for your insurance claim.
Does My Policy Have a Coinsurance Provision?
Coinsurance provisions appear in many different types of policy forms—Commercial property, homeowners, health care insurance, etcetera.
The quickest way to determine whether your policy has a coinsurance provision is to review the policy coverage declarations. An example of a policy declaration with a coinsurance provision is as follows:
How Coinsurance Works
Coinsurance is a provision that reduces the policyholder’s recovery if the coverage limits purchases are below a certain percentage of the property’s value.
of insurance purchased by the insured is not at least equal to a specified percentage (commonly 80 percent) of the value of the insured property. For example, in the above provision, the limits of insurance are $80,000. The provision contains an 80% coinsurance clause, which means the policyholder must purchase at least $64,000 in coverage. If the policyholder purchased less than $64,000 he or she would be responsible for a proportionate share of the loss.
Why Might I want Coinsurance?
Coinsurance may permit policyholders to self insure and save some costs on premiums. That is fine if it is a calculated business decision. Unfortunately, many policyholders are unaware that their policy contains coinsurance and believed that they were fully covered.