Real estate investors understand that property insurance is necessary to protect their investment. Several provisions in a property insurance may lead to confusion, but one term in particular often leaves insured scratching their head. Coinsurance. Real estate investors need to understand this term to eliminate potential surprises in the event of a claim.
Coinsurance is the percentage of the property value, which a real estate investor is required to insure. If the investor insures the home for less than the coinsurance amount, then a related penalty will apply in the event of a claim.
Examples are helpful in order to understand the coinsurance process. Therefore, let us assume your real estate investment property’s value is $2,000,000 and the property insurance policy contains an 80% coinsurance clause. This coinsurance provision means the real estate investor must insure the building for $1,600,000 (value times the coinsurance percentage). If the investor insures the building for $1,200,000, then he or she would be subject to a penalty in the event of a property loss. The claim payout reduces by a factor equal to dividing the actual insured amount ($1,200,000) by the required insured amount ($1,600,000), or 75%. This 75% penalty applies to any claim payout less the applicable deductible.
From this example, real estate investors need to know the importance of coinsurance and the potential impact to claims. In addition to claims, different coinsurance amounts may also influence premium. Our team of real estate insurance experts look forward to discussing coinsurance and other confusing property insurance provisions with you. Our goal is to help make sure you have a comprehensive property insurance policy that protects your real estate investment.
REI Choice is the bi-product of a seasoned real estate investor and successful insurance executive. The ideation behind the company began in 2017 from a chance introduction and a combination of two unique visions. We are located in Dallas, TX. We are a licensed insurance agency in the State of Texas. We are able to offer these products nationwide via Arcana Insurance Services, LP.
TJAW, INC DBA REI Choice Insurance
519 East Interstate 30
Rockwall, TX 75087