Understanding Coinsurance Penalties

Underinsuring your property, even if accidental, could greatly decrease claim payouts when a loss occurs. In this video, we break down how coinsurance penalties work, and how you can avoid them. Watch below!

Transcript:

Coinsurance is an insurance provision that requires property owners to insure their property to a certain percentage of its value- usually 80, 90, or 100 percent. If this requirement is not met at the time of loss, penalties will be incurred, and the claim payout significantly reduced.

Let’s say an investment property insured for 100,000 dollars suffers a 40,000-dollar loss. The insurance adjuster comes out to take a look and determines the rebuild cost of the property is actually 250,000 dollars. Per the policy agreement, this property should have been insured to 80 percent of its true replacement cost, in this case, 200,000 dollars.

As the property is only insured for 100,000 dollars, a coinsurance penalty will be applied for the percentage it was underinsured, in this scenario, that’s 50 percent. Bringing the claim amount down to 20,000 dollars, and after a 3,000-dollar deductible, the payout is just 17,000 dollars for a 40,000-dollar loss.

National Real Estate Insurance Group’s no-coinsurance policies help investors avoid these penalties and ensure protection without unnecessary costs. Partner with the industry experts today.