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The co-insurance clause in insurance of commercial properties



Watch the full video at https://youtu.be/aUDUUrg-us0 and https://rumble.com/c/c-262921;

Co-insurance is often misunderstood in first-party property insurance. It is a clause that often causes dissatisfaction with the insured over damages.

Historically, most losses are partial losses. It is rare that the entire building or the amount of covered property is destroyed. Knowing this, individuals who decide to insure their commercial property can insure only part of its value. The insured may state that because it is more likely to have a partial loss than a total loss, it is a waste to spend premiums on full insurance.

This reasoning naturally defeats the concept that insurance is risk-sharing. If the insured does not receive insurance for the total risk values, the risk is not shared equally with other insured persons. If most insureds choose to insure only part of the value of their property, the insurance industry would still have approximately the same number of claims to pay; however, the premium it collected to pay these claims would be greatly reduced. In order to get enough money to pay for the losses, the insurance companies would charge more for the lower values ​​that the insured chose to insure. The insured who chose to insure the entire property value would pay even more than they now pay for the same coverage. By encouraging insured persons to carry full insurance on their property, the premium levels can be fairer and that is why the insurance provisions were created.

The authors of the coverage forms were aware that the expected insured individuals and companies would carry coverage for 100 percent of the value of their property was unrealistic. They allowed the choice (and the corresponding premium level) to insure against the risk of losing only a percentage of the property's value.

The percentage chosen by the insured is called the "co-insurance percentage". The insured and the insurance company coin-insure the property because the percentage that the insured chooses not to insure represents the coverage that the insured will pay.

To encourage the insured to insure a reasonably high proportion of their property value, the coverage form provides incentives for coverage extensions – wider coverage – to the insured who choose at least 80 percent co-insurance.

It is important that every person who presents or adjusts a commercial property claim understands the meaning and function of co-insurance in any commercial property loss.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to working as an insurance consultant specializing in insurance coverage, insurance claims handling, bad faith insurance and insurance fraud almost as much for insurers and policyholders.

He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance and claims management attorney and more than 54 years in the insurance industry.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award. For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurance companies and their indemnity staff to become insured.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma ; Go to Barry Zalma videos on Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to Insurance Claims Library-https: //zalma.com/blog/insurance-claims-library/ T the last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud- letter -2 / podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4


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