insurance

Waiver of Coinsurance

A waiver of coinsurance is a property insurance clause that allows the policyholder to avoid the coinsurance penalty by maintaining insurance coverage equal to a specified percentage of the property's value. When this requirement is met, the insurer waives the coinsurance penalty even if the property is underinsured at the time of loss.

Example

“The commercial building owner maintained insurance equal to 80% of the property's replacement value, triggering the waiver of coinsurance clause and ensuring full coverage for partial losses without penalty.”

Memory Tip

Remember 'Meet the Percent = No Penalty' - maintain the required coverage percentage to waive coinsurance penalties.

Why It Matters

Understanding waiver of coinsurance helps you avoid devastating financial penalties where you might only receive partial payment for losses even when you thought you had adequate coverage. This clause encourages you to maintain sufficient insurance limits, protecting both you and the insurance company from the problems of underinsurance.

Common Misconception

Many property owners think any insurance coverage will fully protect them, not realizing that coinsurance requirements can drastically reduce claim payments if they don't maintain adequate coverage levels. Some also believe the waiver applies regardless of coverage amounts, when it specifically requires meeting minimum insurance-to-value ratios.

In Practice

Commercial property owner James has a building worth $1,000,000 replacement value with an 80% coinsurance clause. He maintains $800,000 in coverage (80% of value), triggering the waiver of coinsurance. When a fire causes $300,000 in damage, he receives the full $300,000. However, his neighbor with identical property but only $600,000 coverage (60% of value) faces a coinsurance penalty: he receives only $225,000 for the same $300,000 loss ($600,000 ÷ $800,000 × $300,000), leaving him $75,000 short because he didn't meet the 80% requirement.

Etymology

Combines 'waiver' from Anglo-French 'weyver' (to abandon) with 'coinsurance' from 'co-' (together) and 'insurance,' referring to the shared responsibility between insurer and insured.

Common Misspellings

waiver of co-insurancewaiver of coinsurencewaver of coinsurancewaiver of coinsuranse

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