Co-Insurance

There is more than one type of co-insurance. In terms of group health or medical insurance, you the insurance company sometimes share the cost of services under a policy in a specified ratio. It can be that you have 80% so that means that you pay 20% and the overall cost of the insurance is reduced for the group.

Co-insurance is an often misunderstood term on property insurance policies. You will see a reference to "Co-Ins" as a percentage amount relating to the value shown for items including dwellings, buildings, equipment, business interruption payouts, tools, contents, stock and inventory.

The lower the co-insurance percentage then the better it is for the policy holder. An 80% co-insurance is much preferred to a 100% co-insurance. This is because the co-insurance percentage is a requirement of how much of the actual value must be insured without incurring a penalty.

If your building is valued $100,000 and you have a 60% co-insurance then you must insure a minimum of $60,000. If you do not and you have a claim then you will be penalized the difference between what you should have had and what you actually did have on the policy. The maximum you could be paid would be the $60,000.

The only time that the co-insurance will not have an impact is when you have a total loss. Of course, if you have chosen to under-insure you are still in trouble as you will not have enough funds to reconstruct or replace the destroyed property.

Consider a situation where you have tools insured at $50,000 with a 100% co-insurance clause. This means that you have to insure to full replacement value. If you have a claim and $25,000 of your tools are stolen then you would hope to be paid the $25,000 less the deductible. This is what would happen unless your inventory showed that you had $100,000 in tools but chose to only insure $50,000. Now it is deemed that you are your own insurer for 50% of the loss. So you would be paid $12,500 less the deductible. This would leave you in a position of having to find out-of-pocket funds to replace the balance of your tools.

Consider the same situation with a $1 million building. The building has a 90% co-insurance clause. You choose to only insure $500,000. You will be penalized the percentage between $900,000 and $500,000 on any claims. A very bad situation in which to find yourself. If that building was destroyed by fire or tornado, you would only have $500,000 at best to use towards rebuilding.

Talk to your broker or agent about having adequate insurance for your needs. You need to carefully consider the consequences of under-insurance and your financial picture. Turners Tips strongly recommends that you take control of your insurance.