THE SIGNIFICANCE OF CO-INSURANCE
Co-insurance is arguably one of the least understood and most important aspects of your insurance coverage. Most commercial insurance policies contain a co-insurance clause that may impose significant limitations on your coverage in the event of a claim.
Setting proper building and content limits is one of the many important services that an insurance broker provides, and they are experts at helping you value your property appropriately.
Co-Insurance Explained
Put simply, the co-insurance provision in a property policy requires that you (the property owner) carry insurance equal to a minimum percentage (usually 80% or 90%) of the property's actual replacement value in order to receive full payment at the time of a loss. This clause is intended to help the insurance company trust that they receive a fair amount of premium for the risk they have assumed. For example, a building valued at $1,000,000 with a co-insurance clause of 90% must be insured for no less than $900,000. That same building with an 80% co-insurance clause must be insured for at least $800,000.
If a property owner chooses to insure for less than the amount required under the co-insurance clause, the owner is basically agreeing to retain part of the risk rather than transfer it to the insurance company. In essence, the owner becomes a “co-insurer” and will share in the loss along with the insurance company based on the percentage stated in the clause.
This article was provided to the BCLCA by supplier member Signature Risk Partners Inc., the managers of the Signature Park insurance program. If you have any additional questions, please don’t hesitate to contact:
Sharon Parker, Commercial Underwriter
Signature Risk Partners Inc.
