Avoid Being Penalized by Coinsurance

Understanding coinsurance is important to every business owner when evaluating if they have adequate business property coverage.  Othewise, a claim may result in the possibility of being under insured.

The Industry first coinsurance calculator to help business owners with determining if adequately insured on their business property, cannabis, equipment, buildings, and crop coverages.

 

Impact of Coinsurance on your Business Property and Cannabis Coverage

Every cannabis business goes through the process of trying to determine the proper amount of insurance and understanding key policy terms.  One of those terms is named coinsurance.  Each business personal property insurance policy will have information to describe the meaning of coinsurance. 

Basically, it’s a calculation used by insurance carriers to determine the amount of a loss paid after a claim for business personal property coverages.  Property means building, cannabis,  grow equipment, computers, display cases, tenant improvements, or other property owned by the cannabis company.  Commercial liability policies will not have coinsurance.

Coinsurance is always expressed as a percentage.  For example, a cannabis licensee may insure their grow equipment for $500,000 with an 80% coinsurance factor.  A retail marijuana store might insure the building for $350,000 and cannabis stock for $100,000.  Other coinsurance factors may include 90% or 100%.  Most insurance policies will have one coinsurance factor.

The consequence of not being insured to the actual value of the property can result in a reduced claim settlement.  

Below are two examples from an insurance policy to show the impact of coinsurance.  The first scenario results with the customer being paid much less than what they had anticipated.  The second example shows the business personal property was adequately insured to meet the coinsurance factor.  

Coinsurance Calculation:  Example of Being Under-insured:

The Value of the Property: $250,000
The Coinsurance percentage amount (80%, 90%): 80%
The amount of insurance (coverage amount):$100,000
Amount of deductible:$250
The amount of the claim or loss: $40,000

The result of this example is the insurance carrier will pay no more than $19,750 after the deductible despite the claim being $40,000.  This example indicates how important it is to be properly insured. 

Coinsurance Calculation:  Example of Adequate Insurance Coverage:

The Value of the Property: $250,000
The Coinsurance percentage amount (80%, 90%): 80%
The amount of insurance (coverage amount):$200,000
Amount of deductible:$250
The amount of the claim or loss: $40,000

The result of this example is the insurance carrier will pay no more than $39,750 after the deductible.  The claim amount was $40,000.  This example indicates a sufficient coverage limits.