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Coinsurance and Deductible

Explain the concepts of coinsurance and deductible in relation to property insurance. Why do insurance companies have these clauses in their policies?

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RESPONSE:

1. Explain the concepts of coinsurance and deductible in relation to property insurance.

The term "coinsurance", when used in the context of property insurance, is the percentage of value that the policyholder is required to insure. A building with a value of $1,000,000 and a policy with an 80% coinsurance clause must be insured for at least $800,000. To increase the complexity, "value" is determined at the time of the loss. For example, if the amount of insurance is found to be under the coinsurance percentage then a penalty is applied reducing the claim payment, which only hurts the policyholder (http://www.hotelinteractive.com/article.aspx?articleID=3120).

EXAMPLE:

Take the building and policy mentioned above as a case in point. If the policyholder decides to buy $600,000 of insurance and a $100,000 ...

Solution Summary

Explains the concepts of coinsurance and deductible in relation to property insurance and why insurance companies have these clauses in their policies.

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