More Confusing than a House of Mirrors

More Confusing than a House of Mirrors

What is coinsurance? Well it seems to be the insurance version of to, too, and two. Coinsurance is the same term but means different things depending on what type of insurance to which you are referring. This article is only going to cover coinsurance as it applies to property insurance. This will not help you in understanding the medical insurance definition of coinsurance.

Coinsurance for property simply means that if you are not properly insured with your insurance company you are going to participate in assuming some of the insurance risks that would have been otherwise covered if you were properly insured. Simply stated-you are not properly covered and in a partial loss you are probably going to get a check that’s smaller than you expected.

Let’s look at an example before we move further in the article. The most common coinsurance percentage is 80%. Which means if you are not covered for at least 80% of the full replacement cost of your property it’s going to cost you – big time! The cost to you is in the form of reduced amount paid to you. Let’s say it costs $600,000 to replace your property. For whatever reason, you only have it insured for $350,000. This means you should have been insured for $480,000 to avoid the penalty you are about to receive. Five years after purchasing your policy a partial loss occurs on your policy resulting in covered repairs of $250,000. But since you are not fully insured you will only receive $182,291.67 which means your “penalty” for not having the proper amount of insurance is $67,708.33.

Here’s the math from above:

$350,000 (amount of Insurance you purchased)
$480,000 (amount of Insurance you needed)

x$250,000 (the amount of the loss that ocurred) = $182,291 (amount you receive)


$250,000 (amount you would have received if you were fully insured)
– $182,291 (amount you actually received)

$67,708.33 (amount of coinsurance penalty)


Obviously, the cost of not being properly insured can be very expensive. Certainly not worth the few bucks saved on monthly insurance premiums! So what’s the lesson to be learned? Be proactive with your investment property insurance! Don’t take for granted that just because you have insurance that you have enough insurance or that you have the proper insurance. It is our responsibility as consumers to protect our investments and protect our property. The insurance company does their part when they send you the notice of renewal and request you notify them of any changes. You want and need your property to be insured properly. The coinsurance percentage is in place to give you some variance in your individual situation. Insurance is not designed to be an edge of a mountain that you walk. The risk of you not being fully covered is not compensated by the reward of saving a few dollars in premium. My recommendation is take a moment to get with your insurance agent and go over your policies. Your agent should be doing this with you annually and most are willing to do so; it’s simply a matter of you making the time to meet with him/her.