Co Insurance

What you should know about Co-Insurance Clause ?

Executive Summary about Co Insurance by Jason Clegg

The Co-Insurance Clause is a tricky thing that many small business owners overlook simply because they don’t understand the jargon. This should not be surprising - business owners do not have time to waste pouring over insurance contracts and premium details. Business owners are there to run their small business.

What is Co-Insurance?

Generally speaking, this sneaky little clause applies to commercial property or business property and requires that you - the business investor or owner - insure the company property up to a certain point or risk paying a penalty on a claim. Paying such a penalty can be a very disappointing experience because it will usually occur at a time when you really cannot afford it. Accidents and losses are never welcomed experiences - especially in a business environment where time is money and assets are essential to future production.

Consider an example:

If your Co-Insurance clause states 80% then you are required to have proper business insurance coverage up to that percentage limit. If you do not, then the insurance company will not necessarily cover your loss.

Business Property Value: $300,000

Co-Insurance Statement: 80%

Actual Insurance Coverage: $200,000

Since the clause in this example requires eighty percent, then you would need at least $240,000 of coverage or 80% of your actually business value. Since you do not have the full coverage required, you stand to pay a penalty in an insurance loss or accident. Because this will surprise most small business ownership teams, it’s important to look into your co-insurance contract immediately.

Most small business professionals (and even the self employed) do not know about the power of the Co-Insurance clause. Don’t be left out in the cold when an unexpected event occurs in your business that could negatively affect your livelihood. Having proper insurance coverage is an essential part of your success in the business world and you never know when something is going to happen.

What Is That Co-Insurance Clause On My Policy?

Executive Summary about Co Insurance by Gabe Lanteigne

co life insurance

Co-Insurance is a clause imposed on most commercial property insurance policies that requires you to insure your property up to a certain limit of insurance (usually 80%-90%, sometimes 100%). This means that if you you fail to insure your property to full value, you have become a “Co-Insurer” on your property & in the event of a claim you could be looking at a penalty.

Now we understand that if we under-insure our property, in the event of a total loss, we are short the difference. Take that same concept & apply it to a smaller loss:

Example: Actual Building Value $500,000

Building Insured for $300,000

Co-Insurance Clause 90%

Fire Loss $60,000

In this example the insurance policy states that you must be insured up to 90% of the value of the property (building) ($500,000 x 90% = $450,000). You only have the building insured for $300,000 thus leaving you under-insured by 33 1/2%.

You have a fire loss totaling $60,000. Because you were under-insured, the insurance company will reduce the amount paid on the loss by the same ratio that you are under-insured. In this case, the insurer would reduce the payment by 33 1/2% and pay you $40,000. As the “Co-Insurer” you are responsible for the remaining $20,000.

So always be aware of the co-insurance clause on your policy. My suggestion is that you pay to get appraisals done on your property every few years and ask your broker to move you to “Stated Amount Co-Insurance“. Most insurers will move you to this stated amount co-insurance in return for a copy of the appraisal and a signed Statement of Values. This binds the company to agree that there will be no penalty for under-insurance on partial losses as it proves to them that you have done your best to ensure your values are adequate.

The most important point is to remember that the onus is on you to ensure that your values are adequate. Even if you have had help from your broker or another outside source in determining the value of your property, in the event of a covered loss, the insurers are really only just taking your word for it at the end of the day. It means nothing to them if you under-insure your property, that’s why they have this clause to protect them. Who’s protecting you?

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