COINSURANCE & STATEMENT OF VALUES
Understanding Coinsurance And The Benefits Of Signing A Statement Of Values
BY : LAURA PHILLIPS
What Is Coinsurance And Why Is It Important ?
Coinsurance is important for making sure you ’ re fully covered when bad things happen , especially as the cost of property rises due to inflation . It ’ s all about insuring your property for what it would cost to replace it so you don ’ t get surprised by extra costs when you need to make a claim . Coinsurance means you agree to insure your property for a minimum percentage of its total value , usually 80 % to 100 %. This way , if something bad happens , you ’ ll be fully compensated for your losses . If you insure for less than the agreed percentage , you ’ ll have to share the cost of the loss with your insurance company .
Coinsurance helps keep your insurance costs fair and encourages you to value your property accurately . This protects both you and your insurance company from the risks of having too little insurance coverage .
EXAMPLE OF COINSURANCE
Assume the value of the property you are insuring is $ 1,000,000 and the policy contains a 90 % coinsurance clause ; this means you should be carrying at least $ 900,000 in coverage . If you were only carrying $ 500,000 in coverage and had a loss of $ 400,000 , the insurance company would pay based on the following formula :
Amt . of Insurance Carried $ 500K Amt . of Insurance Required $ 900K X
Value of Loss $ 400K =
Settlement $ 222,222
In this example , you would suffer a $ 177,778 coinsurance penalty . In addition , the Basis of Settlement will change from Replacement Cost to Actual Cash Value ( ACV ), which can bring depreciation into the calculation , reducing the settlement even further . This example shows why it ’ s important to insure your property for at least the minimum percentage your policy asks for . It helps you avoid big , unexpected costs if something bad happens , making sure your business property is wellprotected .
NOTE : The settlement amount is subject to your policy deductible .
HOW CAN MILLER INSURANCE BROKERS ( MIB ) HELP ?
• Accurate Valuations : It ’ s very important to value your property accurately . Rising property values mean it would cost more to rebuild your property today than it did a few years ago . Underestimating your property value could leave you with too little insurance , while overestimating might increase your insurance costs . We recommend your insurable limits should be determined by a competent , independent appraisal company .
• Regular Reviews : As your property value changes — especially due to inflation — it ’ s important to review and possibly adjust the agreed amount with your MIB advisor to make sure it still reflects the true cost of replacing your property .
• Stated Amount Endorsement : If you want to avoid the potential problems of coinsurance , the Stated Amount Endorsement is a great solution . With this option , you and your insurance company agree on a specific amount of insurance for your property that replaces the coinsurance rule .
IN CONCLUSION
Adding a Stated Amount Endorsement to your business property insurance can be very beneficial . It removes the worry of coinsurance calculations and ensures your coverage matches your property ’ s true value . Discussing this option with your MIB advisor can help you create a policy that better meets your needs , simplifies your coverage , and provides you peace of mind . +
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