Aaxel Insurance Brokers Ltd. and Other Co-Insurance Companies in Ontario
What is Co-Insurance?
Since the concept of co-insurance is a fundamental principle of property and business continuation insurance, you must understand it before considering the amount of insurance you need to buy.
Co-insurance is simply an agreement between you and the insurance company, whereby you agree to maintain coverage up to a stated percentage (usually eighty percent to one-hundred percent) of the net financial value of the property you wish to insure. Hence, a significant reduction in the premium rate is offered.
Should a loss occur, consideration is then given to the amount of insurance carried compared to actual values before the loss is incurred. If the amount of insurance is within the agreed co-insurance percentage requirement, the loss is paid in full, up to the policy limits. If, however, the amount of insurance that you have bought is below the agreed percentage, you and the company would then be sharing the loss.
Salient illustration: Assume the value of the property you are insuring is $1,000,000.00 and the policy includes a ninety percent coinsurance clause; it means you should be carrying at least $900,000.0 coverage. If you were only carrying $500,000.00 coverage and had a loss of $400,000.00 the insurance company would pay based on the following formula:
Amount of insurance purchased
—————————————————— * Amount of loss = Claim payment
The monetary value of the property * 90%
$500,000.00
———————————- * $400,000.00 = $222,000.00
$1,000,000.00 * 90%
In this case, you would incur a $178,000.00 co-insurance penalty!
A regular and careful review of the financial worth of your insured property is essential if co-Insurance penalties are to be avoided. We recommend your insurable asset values are frequently reviewed by any of the top co-insurance companies in Ontario and they must be updated with your insurance broker at the earliest possible opportunity.
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