Business insurance policies can vary from the simple to the complex but they all follow a certain format and pattern progressively become more complex as the risk increases. One clause that is present in all business insurance policies and rarely explained properly is the Co-Insurance Clause.
Unlike our gift giving friend, Santa Claus, the co-insurance clause is not your friend. This clause is a penalty clause specifically put into the policy to make sure that you insurance your property to value. Common limits seen are 80%, 90% or 100% Co-insurance.
So what does this mean for you and your broker?
As business partners, it is up to us to ensure that the value of your property is appraised properly. If your insurance company puts an 80% on the value of your building then you have to insure it for at least that. (If you are my client, I make sure that you insure your property for 100% to be safe)
What are the consequences of the co-insurance clause?
Simply put – if you don’t insure to the minimum value that the insurance company wants you to – you will be penalized in the event of a claim. For example: if you insure your property for half its value (hopefully against your broker’s recommendations) then if a claim occurs – the insurance company will compensate you for your loss proportionally to the amount you insured it for because you are choosing to self-insuring the rest.
Remember that you are getting insurance to protect you from the big losses – insure to value and you will be able to ensure that at claim time – your property is replaced (as per the rules of your insurance contract).