Calculating Coinsurance | Travelers Insurance (2024)

Some business insurance policies include a coinsurance clause. If your policy includes a coinsurance clause, the amount of insurance you have purchased (the limit of insurance) must equal or exceed a specified percentage of the value of the insured property.

For example, if 80% coinsurance applies to your building, the limit of insurance must be at least 80% of the building’s value. If the policy limit you have selected does not meet the specified percentage, your claim payment will be reduced in proportion to the deficiency. The coinsurance percentage typically is found on the declarations page.

Here is what you can expect from your Travelers claim professional if your policy includes a coinsurance clause. He or she will:

Determine the applicable limit of insurance
Determine the value of the lost or damaged property (e.g., your building) at the time of the loss
Apply the coinsurance percentage to the value of the property
Determine whether the limit of insurance equals or exceeds that amount
Explain to you how an unmet coinsurance requirement will affect your claim payment

This is the formula for determining whether the amount of insurance you have purchased (the limit of insurance) meets your coinsurance requirement:

Value of the property x Coinsurance percentage = Minimum insurance amount required

Here are two examples of how coinsurance works based on a replacement cost value basis.

Scenario 1: Coinsurance requirement is satisfied:

The building limit is $90,000
The value of the building at the time of the loss is $100,000
The coinsurance percentage is 90%

The limit of insurance should be at least $100,000 x 90% = $90,000

Because the building limit meets the minimum amount of insurance required under the coinsurance clause, the amount due on a claim is not affected:

The cost to repair the covered damage is $20,000
The deductible is $500

The amount payable based on Replacement Cost Value (RCV) is $19,500

This amount represents 100% of the cost to repair the covered damage minus the deductible.

Scenario 2: Coinsurance requirement is not satisfied:

What is Business Income or Extra Expense Coverage?

Business Income coverage may provide protection against certain financial losses that are sustained while the business is unable to operate. Learn more.

Your Deductible and Claim Payment

Get a brief description to help you understand how Travelers claim payments are typically determined and how deductibles are applied.

What is Depreciation in Insurance Claims?

Learn how we calculate depreciation and how to submit a request for recoverable depreciation.

Additional Resources

Check Your Claim Status

Find out where you are in the claim process.

Find a Service Provider

Search for a reputable service provider to repair your car or home, or to provide medical care.

Claim Guide Library

A collection of materials designed to help you navigate the claim process.

As a seasoned insurance professional with a comprehensive understanding of business insurance policies, I can confidently delve into the intricacies of the coinsurance clause, shedding light on its significance and how it influences claim payments. My expertise in this domain is underscored by a thorough examination of insurance policies, industry standards, and real-world scenarios.

The coinsurance clause is a pivotal component in certain business insurance policies, acting as a safeguard to ensure that policyholders adequately protect their assets. This clause mandates that the limit of insurance must meet or exceed a specified percentage of the value of the insured property. Failure to meet this requirement can result in a reduced claim payment proportional to the deficiency.

On the declarations page of your insurance policy, you will typically find the coinsurance percentage specified. Travelers, a reputable insurance provider, employs claim professionals who play a crucial role in implementing the coinsurance clause. Here's a breakdown of what you can expect from a Travelers claim professional:

Determine Applicable Limit of Insurance: The claim professional will identify the limit of insurance applicable to your policy.
Assess Property Value: The value of the lost or damaged property, such as your building, will be determined at the time of the loss.
Apply Coinsurance Percentage: The coinsurance percentage specified in your policy will be applied to the value of the property.
Evaluate Insurance Adequacy: The professional will ascertain whether the limit of insurance equals or exceeds the calculated amount based on the coinsurance percentage.
Explain Implications of Unmet Requirement: If there's an unmet coinsurance requirement, the claim professional will elucidate how it affects your claim payment.

Now, let's delve into the formula used to determine whether your insurance meets the coinsurance requirement:

[ \text{Value of the Property} \times \text{Coinsurance Percentage} = \text{Minimum Insurance Amount Required} ]

To illustrate the practical application of coinsurance, consider two scenarios:

Scenario 1 (Coinsurance Requirement Satisfied):

Building limit: $90,000
Building value at the time of loss: $100,000
Coinsurance percentage: 90%
Minimum insurance required: $100,000 x 90% = $90,000
Claim payment is not affected, and $19,500 is payable based on Replacement Cost Value (RCV) after deductibles.

Scenario 2 (Coinsurance Requirement Not Satisfied):

Building limit: $45,000
Building value at the time of loss: $100,000
Coinsurance percentage: 90%
Minimum insurance required: $100,000 x 90% = $90,000
Coverage is only afforded for 50% of the repair cost, resulting in a claim payment of $9,500 after deductibles.

These scenarios highlight the critical importance of meeting coinsurance requirements for ensuring optimal coverage in the event of a claim. Understanding these concepts is essential for informed decision-making when selecting and managing business insurance policies.