What is Coinsurance?

Coinsurance is a provision in the property form which requires that property be insured to some specified percentage of its full value (80%, 90% or 100%). If the property is not insured to the required percentage, the insured will not recover the full amount of a loss, even if the loss is less than the policy limit. Instead, the insured will recover a proportional amount based on the ratio of the actual insurance carried to the amount required.

Coinsurance Example

Consider a building valued at $100,000 with a 90% coinsurance clause. The required insurance amount would be $90,000 (90% of $100,000). If the building is only insured for $45,000 and suffers a $20,000 loss, the recovery would be calculated as follows:

($45,000 / $90,000) x $20,000 = $10,000

The insured would only recover $10,000 (before deductible) on a $20,000 loss because the property was insured for only half of the required amount.

Business Income Monthly Limits

The terms 1/3, 1/4, and 1/6 monthly limits refer to provisions that allow recovery based on a 30-day period to a preselected percentage of the business income limits. These limitations cap the amount that can be recovered in any given month.

Monthly Limit Example

With a 1/3 limitation and a total business income limit of $120,000, the maximum payout for any single 30-day period would be $40,000 (1/3 of $120,000). This means even if the actual business income loss for that month exceeds $40,000, the recovery is capped at that amount.

Understanding coinsurance clauses and monthly limitations is essential for ensuring adequate property and business income coverage. Working with a knowledgeable insurance professional can help you determine the right coverage levels for your specific needs.

Definition provided by American Modern Insurance.