Coinsurance Scenarios

The coinsurance clause in the homeowner policy states that the claim will only be paid in full if the customer insures to at least 80% of the value of the property.  If the customer is unwilling to insure to at least 80%, then he is agreeing to coinsure with the insurance company, in other words – take on part of the risk himself.  If there is a loss, he will not receive full payment, but will share in that loss.

The formula for co-insurance is:

____Limit of Insurance____

Loss  X      Value of Property x Coinsurance %     = Loss Settlement

OR

____DID         _

Loss  X      SHOULD x  80%     = Loss Settlement

DID = The amount of insurance the insured DID purchase.

SHOULD = The amount of insurance the insured SHOULD have purchased.

You may remember it easier like this:

__L__

Loss  x   V x C = Settlement

Let’s work some examples:

1.  Dave’s home is valued at $200,000 replacement cost.  Dave disagrees.  He feels his house is only worth $120,000 and he insists on a Coverage A amount of $120,000.  So the agent wrote the policy for $120,000, thinking well, if that’s what the customer wants, that’s what I should give him.  Later Dave has a fire resulting in $100,000 worth of damage and files a claim.  The loss settlement will be ____.