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The Ultimate Guide to Coinsurance

There are some common misconceptions about coinsurance as it applies to commercial property insurance policies vs. medical insurance policies. The differences come down to one word: penalty. In medical insurance, the coinsurance is how a payment is divided between the insured party and the insurance provider. A figure such as 80/20 would indicate that the insurance provider would pay 80% of a covered medical claim and the insured would pick up the remaining 20% of the same claim. The word “coinsurance” means something different in property insurance terms. Coinsurance would better be described there as a “coinsurance clause” or more accurately a “coinsurance penalty.” Failure on the part of the insured to comply with the coinsurance requirements of the policy results in a coinsurance penalty in the event of a claim. What Is Coinsurance? A coinsurance clause in a property policy is a device to ensure that property is not being underinsured. Typically the quote and declarations will indicate a coinsurance percentage of anywhere from 50% to 100%. Normally a policy will indicate at least 80% coinsurance. Coinsurance Can Protect You The rate per square foot for property insurance coverage is determined by several factors: location, age, construction type, size and safety features. This rate is then multiplied by the amount of coverage required for the building to calculate a premium for property coverage. To save money on your insurance premium, you may be tempted to declare a lower amount of insurance coverage for your building. However, the lower limit of insurance can be detrimental in the event of a loss, since the policy will only pay out the...