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A. Schoeneman & Co., Inc. > Blog > Understanding Co-Insurance

Understanding Co-Insurance

It is important when you buy an insurance policy that you understand the meaning of coinsurance and by underinsuring your property you will  adversley effect the amount you recover should you have a claim.  Most people do not understand co insurance and many insurance agents also have a very limited knowledge of  how it works should you have a claim.  Co insurance is a penalty imposed on the insured by the insurance carrier for under insuring the value of a property or business income.  The penalty is based on a percentage stated within the policy and the amount under reported.   The most commonly issued coinsurance percentage would be 80% but can be as high as 100%.  The latter (100%) would impose the highest penalty for under reporting.  For this reason it is imperative that property values are accurately reported and updated annually to reflect inflation and other increases in building cost.
Co insurance Example:  A building actually valued at $1,000,000 has an 80% coinsurance clause but it is insured for only $750,000.  Since its insured value is less than 80% of its actual value, when it suffers a loss, the insurance payout will be subject to the underreporting penalty.  For example: It suffers a $200,000 loss the coinsurance formula would be  $750,000/$800,000 x $200,000 equals a recovery of $187,500.00.  The insured has a penalty of $12,500.00.