July 26, 2019 by Adam Carlson

Co-insurance is easily one of the most misunderstood and confusing insurance conditions for business owners. And what you don’t know can hurt you.

Find out the top three things you need to know about your co-insurance clause to ensure your business is insured to value.

#1 How the clause works

The co-insurance clause is on almost every business property insurance policy. In a nutshell, this clause says that the policy holder must insure their property to within a specific percentage amount of the actual replacement cost of the property, often 80% or 90%. If the property is not insured to within this percentage, then a financial penalty is applied if there is an insurance claim on any partial or small losses.

#2 What happens if you’re under-insured – A real-life claims example

A local startup restaurant on the Island carried $250,000 in property coverage for their equipment, improvements and stock. During the peak summer months, the restaurant experienced a kitchen fire after hours. The blaze was extinguished before spreading to the entire storefront; however, the damage was estimated at $100,000. Unfortunately, after the owner received several repair quotes, along with replacing the lost inventory, it was determined that $500,000 worth of coverage would be needed in the event of a total loss.

As per the terms and conditions of the insurance, the restaurant’s policy had a 90% co-insurance clause, which meant that it should have been carrying $450,000 in coverage. The fact that the client only had $250,000 worth of coverage meant that the owner was responsible for 50% of the repair costs. The startup restaurant, was now out-of-pocket $50,000, not to mention the additional cost of the deductible. This almost forced the business to close their doors.

#3 How you can protect your business

Here are some very simple and efficient steps you can take to ensure that you meet your policy’s co-insurance requirements:

  1. Calculate the total it would cost to replace all of your business property in today’s dollars, regardless of the age of the property
  2. Take an inventory of all your stock. To make this easy, ask us for our free business property checklist template.
  3. Have a trusted insurance expert review property value and inventory checklist.
  4. If you are under-insured, work with your insurance broker to confirm your policy’s co-insurance percentage and adjust the values appropriately.

Don’t wait until renewal to review your values, even if you feel nothing has changed! As a business owner, having an efficient and effective insurance coverage is paramount. To learn more about getting the right co-insurance policy for your business, contact our team of insurance experts.