Coinsurance Penalties In Your Business Policy. A Blessing Or Curse?

Coinsurance is a type of clause that can be included in a business insurance policy. It is a way for the policyholder to share in the risk of a loss with the insurance company.

The way it works is that the policyholder agrees to carry a certain percentage of the risk, known as the coinsurance percentage. If a loss occurs, the policyholder will be responsible for paying a portion of the loss, known as the coinsurance penalty, up to the policy's limits. The insurance company will then cover the remaining portion of the loss.

For example, if a business has a coinsurance percentage of 80% and suffers a loss of $100,000, the business would be responsible for paying $20,000 (the coinsurance penalty) and the insurance company would pay the remaining $80,000.

Coinsurance can be beneficial for businesses as it can help to lower the cost of insurance. By agreeing to carry a portion of the risk, businesses can negotiate lower premium rates with their insurance carrier. It also helps to incentivize the policy holder to take steps to minimize their risk, such as implementing safety measures and performing regular maintenance on their property.

However, it is important to note that failing to maintain the required percentage of coverage can result in a coinsurance penalty. This penalty can be significant and can result in the policyholder receiving a reduced payout for their loss.

In conclusion, coinsurance is a way for businesses to share in the risk of a loss with their insurance carrier. By agreeing to carry a portion of the risk, businesses can negotiate lower premium rates and incentivize themselves to take steps to minimize their risk. However, it is important to make sure that you maintain the required percentage of coverage to avoid a coinsurance penalty. Talk with one of our trusted agents today to understand this common provision.