Coinsurance/Insurance to Value Revisited



...while technically not coinsurance, is similar to the coinsurance provision in commercial property policies. The similarity lies in the fact that if the 80 percent insurance to value requirement is not met, recovery may be based on the proportion of the cost to repair or replace represented by the amount of insurance carried, divided by 80 percent of the replacement cost. With a homeowners policy, however, the minimum amount received will never be based on an amount that is less than the actual cash value of the property (which can occur with a commercial property policy).

The applicable provisions in the AAIS and ISO standard homeowners policies are virtually identical under the loss settlement provision, paraphrased as follows:

If the “limit” on the damaged building is less than 80 percent of its replacement cost at the time of loss, the larger of the following amounts will be paid, but not more than the policy limit:

If the “limit” on the damaged building is 80 percent 1 or more of its replacement cost at the time of loss, the smaller of the following amounts will be paid:

____________________ 1 Although the policy only requires that the limit be 80 percent of the dwelling replacement cost, many, if not most, insureds will prefer to insure for 100 percent to be sufficiently covered in the event of a total loss.

“It is noteworthy that the insured is not restricted to rebuilding at the same site and may rebuild elsewhere, but the most the insurer will pay is what it would cost to rebuild at the original location.”