Replacement Cost: The cost to replace damaged property with like kind and quality at current material market value, without deduction for depreciation.
Co-Insurance: If there is any coinsurance clause in your policy - you pay less per dollar of protection than you would without it. Usually, the higher the coinsurance percentage—the lower the rate. In return, you agree to insure your property for at least the named percentage of its insurable value on a replacement cost basis at all times. Coinsurance values vary... 80%, 90% and 100% are the most common.
For example - if the insurable, replacement value of your property is $100,000 and your policy carries an 80% coinsurance clause, you have agreed that you will insure your property to at least 80% of its insurable, replacement value at all times. Or, $80,000 in coverage... 80% of $100,000.
In the case of a partial loss - say of $60,000 - what happens? If the insurable, replacement value of your property is still $100,000 (and you still carry $80,000 of insurance) the insurance company pays the entire $60,000 loss. But, if your property's insurable replacement cost has increased - almost always the case these days - let's say to $150,000 then your $80,000 of insurance on the property is no longer at 80% of the insurable replacement value. Actually, it is only two thirds of the $120,000 needed to meet the 80% coinsurance requirement. Since the insurance carrier will only pay in proportion to the amount you actually carry, the insurance carrier will pay only two thirds of the $60,000 loss or $40,000. You are a coinsurer, and will participate in the loss because you have failed to carry an amount of insurance sufficient to satisfy the 80% coinsurance requirement. The insurance carrier will only pay a partial loss in full if you have carried the required percentage of coverage necessary to satisfy the coinsurance clause.
Simply stated, if you do not carry the coverage necessary to satisfy the coinsurance clause, and you sustain a partial loss, the carrier will take what you do carry over what you should carry times the amount of loss and that will be your payment less deductible.
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