Coinsurance, margin clauses, and agreed value

Coinsurance

Insurers require that a building and/or personal property is insured to 90-100% of estimated replacement cost to prevent overpaying on a loss. The values are reviewed and potentially increased with inflation every year to ensure that they are accurate. If the risk object is not insured to 90-100%, there is a penalty in the event of a claim. In the context of blankets, this is called coinsurance. This type of coinsurance is between the insured party and the insurer.

For example, if the insured party has 100% coinsurance, the blanket coverage covers 100% of the cost to rebuild ($30,000,000). If the insured party has 90% coinsurance, the blanket coverage limit is $27,000,000 (90% * $30,000,000) and the insured party is responsible for any excess loss.

Margin clauses

Margin clauses can also be added by the insurer to limit how much is paid for a loss at each location. A margin clause typically ranges between 105% and 130% of value.

Agreed value

Agreed value is another endorsement that can be added to ensure that the insured party is not penalized for not insuring to 90-100% of value. This endorsement is typically used when a building is dilapidated or unusable for some reason.