by Guest » Wed Oct 13, 2010 08:56 pm
An HO3 policy with 80% coinsurance requirement and replacement cost on personal property. Replacement cost of dwelling = $240k. Coverage = $180. Since coinsurance is less than required, will coverage on contents be reduced also, or just coverage on the dwelling?
Posted: Wed Oct 13, 2010 09:12 pm Post Subject:
Yes, the coinsurance requirement will apply to all property losses. Since the replacement cost estimate on the home is $240k and you are carrying $180k of coverage on the home, you do not meet the coinsurance requirement of 80%. In order to be fully compensated for losses up to the policy limit, you would need to carry at least $192k of coverage on the house. Since you are only carrying $180k in coverage and need to carry at least $192k in order to meet the 80% requirement, property losses will be adjusted accordingly.
In the event of a loss, you will only receive 93.75% of the replacement cost after you have met your deductible.
Why aren't you carrying the full replacement coverage? I don't know of any carriers that will allow anything less than 100% to replacement cost on a HO3 contract. Hmmmm... are you trying to minimize your annual premium? There isn't much difference in rate between what you're carrying and the proper amount of coverage. I think you need to talk to your agent to see what's going on here...
InsTeacher 8)
Posted: Wed Oct 13, 2010 10:45 pm Post Subject:
Ins Teacher that is a great responce could have not said it better my self.
Posted: Thu Oct 14, 2010 05:39 am Post Subject:
Why aren't you carrying the full replacement coverage?
A similar problem quickly surfaced a couple of years ago when wildfires damaged or destroyed thousands of home around California. May property owners were suddenly shocked to discover they were seriously underinsured. Complaints began pouring into the Dept of Insurance, and in a number of cases, the answer was that agents misrepresented coverage as being adequate to satisfy the coinsurance requirement without being 100% insured.
The real problem was that the agents had no basis for the amounts of coverage they recommended. There were many Errors & Omissions claims paid as a result of agent negligence in determining property values.
The other effect was a new requirement for Fire & Casualty Broker-Agents who market homeowner's and renter's and dwelling policies to complete a Continuing Education course in determining property values.
And one of the residual effects now is that homeowner's policies are being "automatically increased" to cover increasing cost of construction at a rate that is actually exceeding the cost of materials and labor. I have fought with my own HO insurer the last two years for increasing my coverage by (now) a total of 18% since 2008, raising my premiums right along with it. They don't seem to care that there is a recession on and contractors are not working as much as they once did, and that material costs have not risen 18% in the last two years either.
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