What Is Coinsurance & What Conditions Coinsurance Clause Apply?

Coinsurance is an arrangement which permits the Insured to receive a reduction in rate in return for purchasing insurance of not less than a given percentage, most commonly 80 or 90 percent of the value of the insured property. Coinsurance has the effect of distributing the cost of insurance fairly among all policy-holders, by requiring each to carry amounts of insurance proportionate to the value at risk.

If the Insured carries enough insurance to comply with the coinsurance clause, lie collects the entire amount of his loss up to the face amount of the policy. If he carries less insurance than needed to comply with the coinsurance clause, he will collect only the percentage of his loss- determined by dividing the amount he carried by the amount all should have carried. In this latter case, he will be a Coinsurer with the company; that is, he will be forced to bear part of each loss himself.

Coinsurance of 80 percent or higher is mandatory on school buildings classified as fire-resistive or sprinklered, and on the contents there in. Coinsurance is optional on nor-fire-resistive property. On non-fire-resistive buildings and contents, the coinsurance percentage may range from 20 percent to 100 percent as desired, in any multiple of 10.