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Most homeowners don’t read their homeowners policies. Therefore, they have no idea what a coinsurance clause is. The truth is, this is one of the most important clauses in their policy.
A Coinsurance Clause Is Not Unusual
Having a coinsurance clause is not unusual. In fact, most homeowner and property policies contain these clauses. A coinsurance clause requires that insured individuals carry an amount of insurance greater or equal to the stated percentage of the insurable value on the protected property.
To put it simply, homeowners cannot have cheap insurance on an expensive home. If something were to happen, they could not expect the insurer to cover the cost completely.
Why Do We Need Coinsurance?
Coinsurance sounds confusing and complex, but it is actually very simple. The clause is used to ensure individuals purchasing insurance carry insurance relative to the value of the property. It looks like this:
- You can not purchase $100,000 of insurance to cover your $200,000 house
- If you have only $100,000, and your home requires $200,000 in replacement cost, coinsurance kicks in and any losses are now figured using the coinsurance calculations.
However, if you have a $200,000 house and $200,000 worth of total replacement insurance coverage, then the insurance agency will pay 100% of the total loss (up to the policy limit and minus any deductible). In this instance, the coinsurance clause is a moot point.
How Does Coinsurance Work?
Coinsurance clauses vary in price and coverage. The formula that agents use involves taking the limits, risk value, coinsurance percentage, and covered loss and using the information to calculate the maximum loss payment available.
If you go back to the example above, the payout could be as little as half of the $100,000 in coverage, or $50,000. Typically, if your insurance policy is less than 80% of your home’s replacement value, then the coinsurance clause will kick in.
Prepare for a Fight
You can fight back against a coinsurance clause. One way to do so is to hire a public adjuster.
Most litigation revolves around the following three complaints. Failure to advise:
- That the policy contained a coinsurance clause
- Of the appropriate insurance amount needed to avoid a penalty
- How the coinsurance clause would affect claim payments
Basically, if the insurance company just throws the coinsurance clause at you without adequately explaining what it means, then you may be able to fight against the payout amount.
How To Avoid a Coinsurance Penalty
The best way to fight a coinsurance penalty is to talk to a public adjuster. They have experience helping homeowners with their claims by proving that the homeowner was unaware of the coinsurance clause.
If you’ve been given a coinsurance penalty, call Aftermath Adjusters & Consulting. We can help you even in complicated matters such as coinsurance clauses. It is imperative that you use someone who understands the law on your side.