Demystifying Co-Insurance Clause in Property Insurance Policies

When it comes to protecting our homes, businesses, or personal belongings, property insurance is crucial. However, it’s essential to understand the different clauses and terms in your insurance policy. One such clause is the co-insurance clause, which affects how much coverage you receive in case of a loss. In this blog post, we will explain the co-insurance clause in simple terms, so high school students can grasp its significance in property insurance.

What is Co-Insurance?

Co-insurance in property insurance means sharing the risks and costs between the policyholder and the insurance company. It’s an agreement that requires the insured person to maintain coverage for a certain percentage of the property’s total value. This percentage is usually specified in the insurance policy and is known as the “co-insurance percentage.”

Understanding the Co-Insurance Clause:

The co-insurance clause ensures that you have enough coverage for your property relative to its value. It prevents underinsurance, which is when people intentionally or unintentionally undervalue their property to pay lower premiums.

How Co-Insurance Works:

To figure out the co-insurance penalty, you need to calculate the “insurance to value” ratio. This ratio compares the amount of insurance you have to the actual value of the property. Here’s the formula:

Insurance to Value Ratio = (Insurance Carried / Insurance Required) × 100

If the ratio is equal to or greater than the co-insurance percentage stated in your policy, you’ll be fully covered for any losses. However, if the ratio is less than the co-insurance percentage, a co-insurance penalty will come into play.

Co-Insurance Penalty:

When a co-insurance penalty is triggered, the insurance company won’t fully reimburse your loss. Instead, they will pay only a portion based on the co-insurance ratio. Here’s the formula to calculate the claim payment:

Claim Payment = (Actual Loss × Insurance Carried) / Insurance Required

Let’s say you have a property worth $500,000, and your co-insurance percentage is 80%. If you have insurance for only $350,000 (70% of the property’s value), then you do not meet the 80% threshold required in your policy. If you suffer a loss of $100,000, the insurance company will calculate your claim payment like this:

Claim Payment = ($100,000 × ($350,000) / $500,000) = $70,000

In this case, the insurance company will only reimburse you $70,000 instead of the full $100,000 because you didn’t meet the co-insurance requirement, less the applicable policy deductible.

Importance of Adequate Coverage:

The co-insurance clause emphasizes the importance of having enough coverage for your property. If you don’t, you could face significant financial losses when making a claim. It’s crucial to review your insurance policy regularly to ensure that the insured amount matches the current value of your property.

Tips to Avoid Co-Insurance Penalties:

  1. Get an Accurate Valuation: Have your property professionally appraised to determine its actual value. This will help you set an appropriate insured amount.
  2. Seek Advice: Consult an experienced insurance agent or broker who can explain the co-insurance clause and help you choose the right coverage limits.
  3. Review Your Policy: Periodically reassess your insurance needs to account for any changes in property value, renovations, or new acquisitions that may require adjustments to your coverage.

Conclusion:

The co-insurance clause in property insurance is a significant provision that ensures you have adequate coverage for your property’s value. By understanding this clause and taking steps to avoid co-insurance penalties, you can protect your assets effectively. Regularly reviewing your policy and seeking guidance from insurance professionals will help you make informed decisions, providing you with peace of mind, knowing your property is properly safeguarded.

How does a percentage deductible on my homeowner’s insurance work?

A percentage wind hail deductible is a type of insurance policy deductible that is commonly used in areas that are prone to severe weather events, such as hurricanes, tornadoes, and hailstorms. The deductible is the amount of money that the policyholder is required to pay before their insurance coverage kicks in. With a percentage wind hail deductible, the deductible amount is calculated as a percentage of the insured property’s total value (dwelling limit), rather than as a fixed dollar amount.

For example, if a homeowner has a wind hail deductible of 2% and their home is insured for $500,000, then their deductible amount would be $10,000. If their home sustains damage from a hailstorm that costs $20,000 to repair, the homeowner would be responsible for paying the first $10,000 (the deductible), and the insurance company would cover the remaining $10,000.

The percentage wind hail deductible can vary depending on the insurance policy and the location of the property. In areas that are more prone to severe weather events, the percentage deductible may be higher than in areas with lower risk. The deductible may also vary based on the type of damage that occurs. For example, there may be a separate deductible for wind damage and hail damage.

It’s important to note that the percentage deductible applies to the insured property’s value, not the amount of the insurance claim. This means that if the insured property has increased in value since the policy was purchased, the deductible will also increase. It’s also important to understand that the deductible is a separate expense from the insurance premium, so it’s important to factor in the deductible amount when choosing an insurance policy and budgeting for the cost of repairs in the event of damage from severe weather events.

Side Hustles & Entrepreneurism Risks: Are You Covered?

After businesses shuttered and U.S. workers were sent home at the height of the pandemic in 2020, a report from Dollar Sprout revealed that more that 27% of those with a side hustle rely on that income to pay their bills. They might be doing anything from tutoring, freelance writing, offering professional consulting services, walking dogs or delivering groceries, to name a few.

The Dollar Sprout report also revealed that:
• Of those with a side hustle, 18% expect to turn it into a full-time source of income.
• Although 23% lost side-hustle income because of COVID-19, 42% remain hopeful about their prospects.

While the pandemic reshaped the workplace, the prevalence of home-based businesses had already given rise to ETSY, the fourth largest U.S. ecommerce site by monthly visits, where people sell everything from crafts and antiques to handmade toys and items for weddings, among other things.

The community of freelancers is increasing steadily. The Freelancers Union, established in 1995, says:
• There were 57 million U.S. freelancers in 2020.
• Americans rack up more than 1 billion freelance hours each week.
• Freelancers contribute more than $1 trillion annually to the U.S. economy.

New models of work create different insurance requirements. As individuals take on side hustles to generate more income or out of a desire to operate their own businesses, they also take on risks. If you have a side hustle, you need to insure yourself accordingly.

Liability insurance tops the list. Your Trusted Choice Independent Insurance Agent® can help you evaluate your side business, assess your existing coverages, and determine if you need a professional or business liability policy in addition to personal insurance. As a highly trained professional, your Trusted Choice agent can advise you of the specific or often overlooked coverages you should consider, and then assemble competitive product choices for you from the insurance marketplace.

Why is this so important? Even the most benign gig could destroy an individual financially in the absence of appropriate insurance coverage. Imagine a child takes a nasty tumble in your home while there for a piano lesson or a client accuses you of plagiarism: You will be liable. Or consider the costs you would be responsible for if the dog you’re walking breaks loose and attacks a pedestrian. The right policy can protect you.

Cyber insurance is also a growing consideration. If you set up an online store to sell crafts or homemade baked goods and a hacker steals your customers’ credit card data, what would be the cost to you? Would you be able to recoup your losses? Cyber insurance can protect you in the event of a breech whether your computer is hacked or your phone containing private information is stolen.

Auto insurance. Some automotive policies are for personal use only. Others may cover a business-related accident, but with limited coverage. If your side hustle involves driving and you get into an accident, do you know whether your insurance will cover you? If not, check with your Trusted Choice agent before an accident occurs.

Even if you are employed as a delivery driver, you need to know whether the company’s insurance covers you and what the limits are for collision, liability and medical. Talk with your independent agent, so you’ll know if you need a commercial policy for adequate protection.

Fire insurance. You probably have a homeowners or renters policy that provides coverage for losses incurred in a fire. But what happens if you operate a home business and spent thousands of dollars on office equipment? Will the insurance extend beyond your personal belongings to cover that equipment? Or, for that matter, will it cover the materials you purchased to make the items that you sell, or the business inventory you store at home?

Find answers before you need to make a claim, and avoid potentially devastating surprises. Your Trusted Choice agent can explain where your personal coverage ends, and where the gaps are in your business coverage.

As your business grows, be sure to inform your Trusted Choice agent so they can work with you to adjust your coverages and ensure the policies keep pace with your needs — especially if you hire workers or engage a contractor. Your agent can advise you about workers’ compensation insurance and employment practices liability insurance. Your agent also can review your contractor’s proof of insurance to determine if it meets your business’s needs.

Think of your Trusted Choice agent as a business partner who has your interests at heart. Your agent will work with you every step of the way as you grow your side hustle and reap the fruits of your efforts. Contact LG Insurance Group today if you have any questions regarding your insurance needs.

Tips for Avoiding Water Loss in your Home

Did you know that water damage is the second most frequently filed loss experienced by homeowners and renters each year? (according to the Insurance Information Institute)  The infographic below, provided by Safeco, can help you understand the risks, offer prevention tips and share the resources you may need if a water loss occurs. 

Why You Need Higher Auto Liability Limits

When deciding which auto liability limits to select on your auto insurance policy, your premium should be secondary.  Your primary thought in selecting your liability limits should be protecting your assets and yourself from potential legal liability and avoid exposing yourself to costly lawsuits or judgments.  Minimum insurance limits should only be selected if that is truly all you can afford.  Once your budget allows, be sure to increase your limits and also consider purchasing an umbrella policy.  It is not as expensive as you may think and it could save you during a claim!

 

How Equipment Breakdown Coverage Can Help You

If you are a homeowner and either currently have a home warranty plan or would like to have one if it were less expensive, then you need to read this!  More and more insurance companies are offering an optional endorsement that provides much of the same coverage as popular home warranty policies.  These plans are often provided to a home buyer by the seller when purchasing an existing home.  Some homeowner’s continue to renew these plans while some choose to allow them to expire due to the annual cost.  Many insurers now offer this protection at a lower cost, when endorsed onto a homeowner’s insurance policy.  The following infographic gives an overview of what is covered by Safeco’s Equipment Breakdown endorsement, including examples of what is and what is not covered.

Contact LG Insurance Group if you would like to learn about this valuable coverage!