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Please note: J. Michael Low is a former AZ Director of Insurance, and is the founding partner and an attorney with Low & Childers, PC of Phoenix, AZ. He is still practicing full time and has agreed to help Low & Johnson on certain coverage and claims issues relating to insurance. He is not issuing legal opinions or legal advice on behalf of Low & Childers. Mr. Low is a licensed property and casualty producer in the state of Arizona.
Co-insurance is a tool of insurance companies to make sure that you carry the full replacement cost (RC) value of your building or business personal property contents in your commercial property policy. If you carry less than the full amount, there is a co-insurance penalty that the insurer will apply at the time of a loss. In other words, if you carry only 50% of the full RC value, the insurer will only pay 50% of your loss, regardless of the limit on your policy.
To make sure you avoid this penalty you have the following options:
| 1. | Carry at least 80% of the full RC value. Most carriers will not charge a penalty if you carry at least 80%. |
| 2. | Have the property written on an agreed amount basis. This waives the co-insurance penalty when you and the insurance company underwriter agree in advance on the value of the property. |
| 3. | Business Owners Policies (BOP) will often automatically waive the co-insurance penalty as a benefit of the BOP policy. These are policies specifically developed for smaller businesses. |
Any questions please give me a call or e-mail. Also, we keep the insurance tips newsletter an various topical insurance issued posted on the Low & Johnson web site www.lowjohnson.com.