What is coinsurance and how does it apply?
• Coinsurance is figured on all property policies and is designed to protect both the insurance company and the insured. It can be a penalty that is applied to a loss because the insured has not carried the proper amount of coverage on either the building or on personal property according to the policy terms. If coverage is written on Replacement Cost basis of 80% coinsurance, the insured is receiving a reduced rate for the coverage. If a loss would occur this is how it would apply: Value Of Property $250,000 Coinsurance Percentage 80% Limits of Insurance $100,000 Deductible $250 Amount of Loss $40,000 • Multiply the value of the property ($250,000) x the coinsurance factor (80%) =$200,000 (the minimum amount of coverage you should have carried) • Divide the limit of insurance ($100,000) by the figure above ($200,000) = .50 (penalty for underinsured) • Multiply the total amount of loss ($40,000) by the factor determined above (.50) = $20,000. • Subtract the amount of the deductible ($2
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