A coinsurance clause in an insurance
policy requires the owner to insure a
minimum percentage of the replacement cost
of the property in order to be paid in full
for losses incurred under that policy.
Typically, Canadian insurers require a
minimum of 80% of the replacement cost. If
an amount less than 80% is covered, then the
owner of the property becomes a co-insurer
and bears the proportionate share of any
losses incurred.
Example of Coinsurance
An investor
has a fire insurance policy with Anycity
Insurance Company Ltd. that requires a
minimum of 80% coinsurance, subject to any
deductibles stated in the policy. The
replacement value of the property is
$220,000 and Smith insures the property for
$210,000 or 95.45% of replacement value.
Therefore, Smith falls within the
coinsurance guidelines and any loss would be
paid in full (subject of course to any other
provisions in the policy that might affect
loss payment).
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