What is Coinsurance

What is coinsurance (and why is it important)? It seems the term is the insurance version of to, too, and two. Coinsurance is the same term, but it means different things, depending on the type of insurance to which you refer. WHAT IS COINSURANCE, MORE CONFUSING THAN A HOUSE OF MIRRORS. Read on and let the team at Asset Protection Insurance Associates (APIA) explain just how coinsurance applies to property insurance.

It’s different than the “coinsurance” most of us are familiar with in medical insurance. Coinsurance for property simply means that if you are not properly insured with your insurance company, you are going to assume some of the insurance risks that would have been otherwise covered if you were properly insured.

Simply stated, if you are not properly covered, and in a partial loss, you are probably going to get a check that’s smaller than you expected.

Coinsurance Example:

The most common coinsurance percentage is 80%. This means if you are not covered for at least 80% of the full replacement cost of your property, it’s going to cost you – BIG TIME! The cost comes in the form of a reduced amount paid to you. Let’s say it would cost $600,000 to replace your property.

It should have been insured for 80% of value which means it should have been insured for $480,000. For whatever reason, you only have it insured for $350,000. Five years after purchasing your policy a partial loss occurs on your policy resulting in covered repairs of $250,000. Since you are not fully insured, you will only receive $182,291.67 which means your “penalty” for not having the proper amount of insurance is $67,708.33.

Here’s the math breakdown:

$350,000 (amount of insurance you purchased)

$480,000 (amount of insurance you needed)

X $250,000 (the amount of the loss that occurred) = $182,291 (amount you receive)

$250,000 (amount you would have received if you were fully insured)

– $182,291 (amount you actually received)

$67,708.33 (amount of coinsurance penalty).

Obviously, the cost of not being properly insured can be very expensive. It’s certainly not worth the few dollars “saved” on monthly insurance premiums.

What’s the lesson to be learned?

Be proactive with your investment property insurance! Don’t take for granted that just because you have insurance it’s enough insurance or the right type of insurance. Let Asset Protection Insurance Associates (APIA) help you get it right. Our insurance experts specialize only in Real Estate Protection Insurance for clients who have five or more properties. We custom built a program where you only have one policy for all of your properties (single-family homes).

As a consumer, it’s your responsibility to protect your investments and property. The coinsurance percentage is in place to give you some variance in your individual situation, but insurance is not designed to be an edge-of-a-mountain walk. The risk of you not being fully covered is not compensated by the reward of saving a few dollars in premiums.

At APIA, our recommendation is to take a moment to get with your agent and go over your policies. We suggest doing this annually; it’s simply a matter of you making the time to look after your biggest investments.

What We Do, In Addition to answering questions, like What is coinsurance?

At APIA, our mission is to build strong relationships with clients by providing exceptional customer service, competitive pricing, promptness in delivering important documents, and responding to questions and concerns. We have the flexibility to meet the unique demands of both investors and financial institutions.

Multiple policies can be a lot to track. APIA built programs (coastal / inland) to put all your properties under ONE insurance policy. We’ve been helping investors save time and improve cash flow nationwide, since 2001. We also work with financial institutions and mortgage services to help simplify the process of REO and forced placed insurance.