Columbus Business Insurance | Columbus Ohio

Greenzalis Insurance Group

The business insurance concept of coinsurance explained...even the Geico Caveman can understand this - well, maybe not!

If your like me the concept of coinsurance as it pertains to a business insurance policy can be very confusing. Below is an attempt at demystifying the concept...hopefully this explanation will help you as it did me:

Here it goes.....If a coinsurance percentage is shown in the Declarations of your business insurance policy, the following condition most likely applies. The language in the business insurance policy will read something like this:

We (the business insurance company) will not pay the full amount of any loss if the value of covered property at the time of loss times the coinsurance percentage shown for it in the declarations is greater than the limit of Insurance for the property. Instead, we (the business insurance company) will determine the most we will pay using the following steps:

(1)Multiply the value of covered property at the time of loss by the coinsurance percentage;
(2)divide the limit of insurance of the property by the figure determined in Step (1);
(3)multiply the total amount of loss, before the application of any deductible, by the figure determined in Step (2);
(4)subtract the deductible from the figure determined in Step (3).

We will pay the amount determined in Step (4) or the limit of insurance, whichever is less. For the remainder, you will either have to rely on other insurance or absorb the loss yourself.

EXAMPLE #1 (UNDERINSURANCE)

When: The value of the property is: $250,000, the coinsurance percentage for it is: 80%, the limit of Insurance for it is: $100,000 and the deductible is: $250, the amount of loss is: $40,000.

Step (1): $250,000 x 80% = $200,000 (the minimum amount of insurance to meet your coinsurance requirements) Step (2): $100,000 ÷ $200,000 = .50

Step (3): $40,000 x .50 = $20,000

Step (4): $20,000 – $250 = $19,750 we will pay no more than $19,750.

The remaining $20,250 is not covered.

EXAMPLE #2 (ADEQUATE INSURANCE)

When: The value of the property is: $250,000, the coinsurance percentage for it is: 80%, the limit of insurance for it is: $200,000 and the deductible is: $250, the amount of loss is: $40,000.

The minimum amount of insurance to meet your coinsurance requirement is $200,000 ($250,000 x 80%). Therefore, the limit of insurance in this example is adequate and no penalty applies. We will pay no more than $39,750 ($40,000 amount of loss minus the deductible of $250). Note: If one limit of insurance applies to two or more separate items, this condition will apply to the total of all property to which the limit applies.

EXAMPLE #3 (IF YOU CAN UNDERSTAND THIS ONE YOU’RE SMARTER THAN THE GEICO CAVEMAN!)

When: The value of the property is: Building at location #1: $75,000, building at location #2: $100,000, personal property at location #2: $75,000 for a total of $ 250,000. The coinsurance percentage for it is: 90%, the limit of insurance for buildings and personal property at locations #1 and #2 is: $180,000, the deductible is: $1,000, the amount of loss is: Building at location #2: $30,000, personal property at location #2: $20,000, for a total of $50,000.

Step (1): $250,000 x 90% = $225,000 (the minimum amount of insurance to meet your coinsurance requirements and to avoid the penalty shown below)

Step (2): $180,000 ÷ $225,000 = .80

Step (3): $50,000 x .80 = $40,000

Step (4): $40,000 – $1,000 = $39,000

We will pay no more than $39,000. The remaining $11,000 is not covered.

So when you’re in the market for a good Columbus business insurance agent to help you with your business insurance needs, give us a call. You’ll be glad you did - promise!

Main Location: 6151 Avery Dr. Dublin, Ohio 43017