Principles of Risk Management and Insurance, 13th Edition

Coinsurance

Coinsurance is a contractual provision that often appears in property insurance contracts. This is especially true of commercial property insurance contracts.

Nature of Coinsurance

A coinsurance clause in a property insurance contract encourages the insured to insure the property to a stated percentage of its insurable value. If the coinsurance requirement is not met at the time of loss, the insured must share in the loss as a coinsurer. The insurable value of the property is the actual cash value, replacement cost, or some other value described in the valuation clause of the policy. If the insured wants to collect in full for a partial loss, the coinsurance requirement must be satisfied. Otherwise, the insured will be penalized if ...