When you review your commercial property insurance policy, the co-insurance clause might seem like just another complex insurance term. But misunderstanding this provision could result in unexpected costs when you file a claim. Many Central New York business owners discover the effects of co-insurance only after facing a loss.
At the Horan insurance agency, we work with multiple insurance carriers in Central New York. Through our experience with commercial property policies, we can share information about how co-insurance provisions may affect coverage.
In this article, we'll explore what co-insurance means for your business property coverage, how different percentages work, and what steps to evaluate for maintaining coverage under these requirements.
What Is Co-Insurance on a Commercial Property Policy?
Co-insurance is a policy provision that requires you to carry a minimum amount of insurance relative to your business property's value. This provision sets a percentage (typically 80%, 90%, or 100%) of your business property's replacement cost value that must be covered by insurance.
If you don't meet this requirement, the insurance carrier may reduce claim payments proportionally.
Learn more about commercial property insurance and why it’s essential.
How Co-Insurance Requirements Can Affect Your Property Claim Payments
Co-insurance impacts how carriers calculate claim payments, particularly for partial losses. Here's what to understand about this policy provision:
When your policy includes a 100% co-insurance clause, coverage should match 100% of your business property's replacement cost value—not market value. Consider this scenario:
- Your property's replacement cost: $100,000
- Your current coverage amount: $90,000
- Result: Coverage is 10% below the stated requirement
This coverage level affects how your carrier may calculate claim payments:
- A partial loss occurs: $10,000 in damage
- With 10% less coverage than required: Payment may be reduced to $9,000
- After applying a $1,000 deductible: Final payment may be $8,000
While total losses typically receive your full coverage amount (minus deductible), partial losses work differently because the co-insurance provision can reduce the payment proportionally.
Understanding Different Co-Insurance Percentages and Their Impact on Claims
Most commercial property policies offer various co-insurance percentage options:
With an 80% co-insurance clause:
- Coverage should reach at least 80% of your business property's replacement cost value
- Meeting this threshold may allow full payment for partial losses (minus deductible)
- Falling below 80% may trigger the co-insurance calculation
- Your claim payment could reduce proportionally to your coverage level
With a 90% co-insurance clause:
- Coverage should equal at least 90% of business property value
- The calculation applies more strictly
- Less room for error in coverage levels
Carefully Review Your Co-Insurance Requirements and Coverage Levels
Understanding your policy's co-insurance clause can support your coverage planning. Consider these steps:
- Review your current co-insurance percentage
- Calculate your business property's current replacement cost value
- Compare your coverage amount to co-insurance requirements
- Review coverage when business property values change
- Document your business property value assessments
- Ask questions about co-insurance—misunderstandings about this clause can impact coverage
Get Help Understanding Your Commercial Property Co-Insurance Provisions
Co-insurance clauses can lead to unexpected outcomes when filing a claim. You'll want to review your business property coverage relative to your policy's co-insurance requirements.
As a Central New York insurance agency, we can discuss how co-insurance works with various coverage options. We work with several insurance companies and can assist in exploring coverage that aligns with commercial property insurance requirements.
Click the Get a Quote button below to learn about commercial property insurance options from an agency familiar with both co-insurance provisions and local Central New York business considerations.
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