Lisa Terrasi, Commercial Account Associate, clarifies co-insurance.
Coinsurance requires an insured to maintain coverage in an amount that is at least that percentage of it’s actual replacement value and can act like a penalty. For example, if you have 80% coinsurance on a building that has a replacement value of $10,000,000, you are required to maintain coverage in an amount of at least 80% or $8,000,000. If you don’t, in the event of a claim, the insurance company will penalize you. In this example, if you maintained only $4,000,000 of coverage, which is 50% of the minimum required limit of $8,000,000, the insurance company would only pay 50% of a property claim. If possible, you should always ask your broker if the insurance company will provide Agreed Amount, which waives coinsurance.