Co-insurance is an agreement between you and the Insurance Company, whereby you agree to maintain coverage up to a stated percentage of the value of the property you wish to insure. The policy declaration page will itemize which of your coverage is affected by co-insurance along with the applicable percentage.

How do I know how much to insure?

With all insurance policies, the onus is on you, the insured, to advise the broker and insurance company what coverage limits are required. While the broker plays an important role in advising and assisting you, we are not licenced property appraisers. Any building, property, or income valuation provided by us is intended as only a guide, and cannot be relied upon as a formal evaluation. If you are unable to determine the limit of insurance to purchase, we suggest you seek a qualified third party appraisal.

How does Co-Insurance work?

In the event of an insured loss, and after establishing the amount of damage to be repaired, the insurance company adjuster calculates the value of 100% of the entire property (i.e. including the damage and undamaged parts of the property).

The adjuster then multiplies that total value by your policy’s Co-Insurance. This amount represents the minimum limit of insurance you were required to have purchased before the loss.

What happens if I meet the Co-Insurance requirement?

Simple, the adjuster will proceed to authorize payment of your claim (subject to any other policy terms and conditions).

What happens if my insurance limit is too low?

If you did not purchase the minimum coverage, the adjuster will charge you a Co-Insurance penalty.

An example of how the Co-Insurance penalty works.

You purchase a policy with a $500,000 building limit.

An insured loss occurs. The adjuster calculates the amount of damage to be $400,000. Next, the adjuster calculates the construction value of the entire building at the time of loss to be $1,000,000. Your policy contains a 90% co-insurance clause.,

Based on this information, the adjuster will calculate that you should have purchased $900,000 building coverage ($1,000,000 x 90% = $900,000).

Unfortunately, the $500,000 limit you purchased only represents 55.55% of the amount you should have purchased ($500,000/$900,000 = 55.55%).

Therefore the insurance company will only pay 55.55% of the loss and you will be responsible to pay for the remaining 44.45%.

In other words, the $400,000 damages will be paid as follows:

Insurance company will pay $400,000 x 55.55% = $222,222

You are responsible to pay $400,000 x 44.45% = $177,778