Call Us 800-977-8909 ☰ ˟
Logo
Call Us: 800-977-8909
  • Home
  • Korean Services
    • Commercial Line
    • Personal Line
    • Benefit Line
  • Servicing Industries
    • Financial Services
    • Wholesale and Distributor
    • Restaurant
    • Real Estate
    • Trucking
    • Contractors
    • Life Sciences
    • Manufacturing
    • Retail
    • Religious Organization
  • Management Liability
    • Directors & Officers
    • Professional Liability
    • Employment Practice Liability
  • Cyber Security
  • Trade Credit
  • Personal Insurance
    • Auto Insurance
    • Home Insurance
    • Rental Property
    • Watercraft & Boat
  • Employee Group Benefit
  • Service Request
    • Request Certificate of Liability
    • Request Evidence of Property
    • File Claim or Make Payment
  • Our Company
    • About Us
    • Testimonials
    • Blog
    • Privacy Policy
    • Career
Icon

Auto

We browse through a wide variety of coverages and find the right one for you.

Get a Quote
Icon

Home

We browse through a wide variety of coverages and find the right one for you.

Get a Quote
Icon

Business

We browse through a wide variety of coverages and find the right one for you.

Get a Quote
Icon

Employee Group Benefits

We browse through a wide variety of coverages and find the right one for you.

Get a Quote
Home > Blog > Underinsurance Penalty or Coinsurance
THURSDAY, MARCH 17, 2022

Underinsurance Penalty or Coinsurance

How does underinsurance penalty come to play, and why does it matter? Shouldn’t consumers be able to choose the amount of coverage they desire? If they only want 50K worth of coverage for inventory, or 100K for loss of income, who’s to say no?

Fact of the matter is understanding underinsurance penalty or “coinsurance” is crucial because it may negatively affect your claim settlement. Most business policies have a coinsurance requirement, typically anywhere from 80% to 100%. The purpose of applying a coinsurance is to encourage consumers to purchase insurance to value. And this translates to adequate premium for the insurance company. It would make rates equitable and better position the insurance company to withstand the wild rollercoaster ride in the market place. If the insurance company doesn't collect adequate premium or set rates that properly reflect the risk, chances are it will bump up the rates significantly going forward making a lot of customers unhappy. 

Here's an example of how coinsurance works and why they're important.

Let’s say you have a policy with an 80% coinsurance.

You have 50K coverage on your property. But the actual value of goods is 150K.

Using 80% coinsurance, your coverage limit should be at least 120K (150K x 80%).

A fire broke out in your office and damaged 30K worth of goods. And you may think since I have 50K coverage, I should be all good. We’ll see about that.

 

·         50,000(did) / 120,000(should) = 0.416

·         0.416 x 30,000 (loss) = 12,500 (amount of settlement before deductible)

 

You were thinking that you would receive 30K for damaged goods, but you’ll only get 12,500. That’s a 17,500 penalty! 

The point is, if you have a coinsurance policy make sure to do your due diligence and insure to value all the time. It’s worth hiring an appraiser every once in a while to determine the true value of your property.

Posted 5:20 PM

Share |


No Comments


Post a Comment
Required
Required (Not Displayed)
Required


All comments are moderated and stripped of HTML.

NOTICE: This blog and website are made available by the publisher for educational and informational purposes only. It is not be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state. By using this blog site you understand that there is no broker client relationship between you and the blog and website publisher.
Blog Archive
  • 2023
  • 2022
  • 2021
  • 2020


View Mobile Version

-Contact Us Today!-

Call 800-977-8909 
or Kakao Talk

 상담 QR코드

-Contact Form-

Resources

  • Products
  • Customer Service
  • Payment Options
  • Report a Claim
  • News

Contact Us

Main Office
222 Bruce Reynolds Blvd., Suite 440
Fort Lee, NJ 07024

T: 800-977-8909
E: services@econoagency.com
© Copyright. All rights reserved. | Powered by Insurance Website Builder