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Insurance · Claims and Loss Settlement

What is the 'coinsurance clause' in a commercial property policy?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

A requirement that the insured carry insurance equal to a specified percentage (typically 80%, 90%, or 100%) of the property's replacement cost value — underinsurance results in a penalty at claim time

  1. A A provision allowing co-ownership of the policy
  2. B A government mandate to offer coverage
  3. C A requirement that the insured carry insurance equal to a specified percentage (typically 80%, 90%, or 100%) of the property's replacement cost value — underinsurance results in a penalty at claim time
  4. D A requirement to share claims with other insurers

Why this is the answer

Commercial property coinsurance requires the insured to carry insurance equal to a specified percentage of the property's replacement cost value (RCV). Typical coinsurance requirements: 80%, 90%, or 100% of RCV. At a partial loss, if the insured carried less than required, their recovery is proportionally reduced (see coinsurance formula). Insureds can avoid coinsurance penalties by: (1) insuring to value (carrying at least the required percentage); (2) adding an Agreed Value endorsement (waives coinsurance if the insurer agrees on the property value upfront); (3) choosing a policy without coinsurance (typically higher premium).
Source: Property Insurance Exam, Commercial Coinsurance Clause

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About this topic: Claims and Loss Settlement

Claims and loss settlement questions cover the insured's duties after a loss, actual cash value versus replacement cost, the coinsurance formula, deductibles, appraisal and subrogation. This is one of 11 Property Insurance questions on claims and loss settlement, each with a full explanation on a single study page.

New to this exam? Our Insurance exam guide explains the format, scoring, and how to prepare.

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