Many policyholders are not aware of the validity of a currency insurance clause, or that it even exists, until after a loss occurs. This is an unwelcome lesson for those who unknowingly risked part of their expected insurance income. Whether you have a homeowner policy, 1 a commercial package policy, 2 or a business owner, 3 this is a reminder to pull it out the box or ask your agent or broker about the coin insurance clause in your insurance and how it applies to property damage. 4
In general, an insurance clause requires the policyholder to insure the property at a percentage of its full value. 5 The failure to do so means that one must bear the proportionate amount of the loss for which the property would have been insured. The purpose of the clause is to avoid extensive underinsurance and to ensure that adequate premiums are charged based on the insured risk. A common and simplified formula that reflects the application of this clause is:
Even if the insurance amount you had had is straight forward, it is not the case to calculate what you should have implemented simple. To calculate what you should have with you, you must know (1) the total insurance value ("TIV") at the time of the loss and multiply it by (2) the insurance percentage stated in your insurance. 6 The basis for calculating TIV will be based on how the loss is to be settled – fair cash value or compensation cost . Here is a more reflective formula and an example of how a policyholder can be penalized after suffering a loss of $ 40,000 even though he / she had $ 60,000 in coverage:
Co-insurance options differ depending on the type of property policy. Business owner policies are written with 80% insurance clauses such as homeowners and commercial insurances, but homeowners' insurance clauses can be approved (against a higher premium) and commercial insurances can be increased upon application (against a reduced premium). 7 Although commercial policyholders may be tempted to save a few dollars in exchange for simply insuring their property to value, we warn against insuring a property with a 100% insurance clause because TIV is calculated at time for the loss not at the time of purchase of the policy. With a 100% insurance clause, there is no margin for error in predicting the value of the property in the future. Although there is an inflation watch, partly to address this problem, we have often seen it fail to keep pace with the proper valuation of a property. in your policy. Many policies are not written on ISO forms and will differ. Even if it is written on an ISO form, there will be differences depending on the type of property. For example, business policies and business owners will often apply the co-insurance clause to both real and personal property, while homeowner policies limit co-insurance to real estate. Furthermore, commercial insurances will often pay the lower of the insurance limit or coin insurance calculation, while corporate ownership policies and homeowner policies usually pay greater of actual cash value or coin insurance  We recommend agents, brokers, adjusters and lawyers to add the insurance clause to their shortlist of provisions to read about when acquiring a policy, renewing a policy, adjusting or resolving a loss. If you have any questions regarding how an insurance clause in your insurance applies to loss, do not hesitate to reach out.
1 For household policy, this provision is often found in “Section I – Conditions; D. Loss settlement; 2. B. "
2 In the case of commercial property, this provision is often found in" Additional conditions: 1. Co-insurance "
3 For business owners, this provision is often found in" E. Property conditions: 5. Loss payment: d. (1) (b) ”
4 General references are to ISO forms unless otherwise stated.
5> For example, 80% of the cost of replacing a structure.
6 Christopher J. Boggs. (April 12, 2012) Session 2: Valuation / Coinsurance Training Triple Pack . The Insurance Academy. (This can be listed on your declaration page or in your policy)