Skip to content
SuperMoney logo
SuperMoney logo

Waiver of Coinsurance Clause: Definition and Implication in the Insurance Industry

Last updated 06/12/2024 by

Daniel Dikio

Edited by

Fact checked by

Summary:
The waiver of coinsurance clause is an important provision in insurance policies that can have significant implications for policyholders. By understanding how this clause works and its potential impact on coverage and premiums, policyholders can make informed decisions when selecting insurance coverage for their valuable assets.

Introduction to coinsurance

Insurance policies commonly include a coinsurance provision, which requires policyholders to share a percentage of the covered expenses with the insurer. This arrangement is designed to encourage policyholders to accurately assess the value of their property and to share in the risk of loss.
Coinsurance works by requiring policyholders to maintain coverage equal to a specified percentage of the property’s value. If the policyholder fails to meet this requirement and incurs a loss, they may be subject to a penalty known as the coinsurance penalty.

Understanding the waiver of coinsurance clause

The waiver of coinsurance clause is a provision that can be added to an insurance policy to relieve the policyholder of the coinsurance requirement under certain circumstances. This clause effectively “waives” the coinsurance penalty in the event of a covered loss, regardless of whether the policyholder has met the coinsurance requirement.
The primary purpose of the waiver of coinsurance clause is to provide additional flexibility and protection for policyholders, particularly in situations where the value of the insured property fluctuates or is difficult to determine accurately.

Scenarios where the waiver of coinsurance clause applies

The waiver of coinsurance clause may come into play in various scenarios, including:
  • Properties with fluctuating values: For example, commercial properties or inventory that may experience significant fluctuations in value over time.
  • Properties with uncertain values: Such as unique or specialized assets that are challenging to appraise accurately.
  • Properties subject to regulatory requirements: Certain industries or types of property may be subject to regulatory requirements that affect their insurable value.
In these situations, the waiver of coinsurance clause provides policyholders with peace of mind knowing that they will not be penalized for underinsuring their property.

Pros and cons of the waiver of coinsurance clause

Like any insurance provision, the waiver of coinsurance clause has its advantages and disadvantages.

Pros

  • Provides flexibility for policyholders: Allows policyholders to adjust coverage levels without worrying about the coinsurance penalty.
  • Simplifies claims process: Eliminates the need to calculate coinsurance penalties in the event of a covered loss.
  • Enhances risk management: Encourages policyholders to maintain adequate coverage levels to protect against potential losses.

Cons

  • Potential for increased premiums: Policies that include a waiver of coinsurance clause may have higher premiums to account for the additional coverage provided.
  • Misunderstanding of coverage: Policyholders may mistakenly believe that the waiver of coinsurance clause eliminates their obligation to maintain adequate coverage levels.

FAQs

What is the purpose of the waiver of coinsurance clause?

The primary purpose of the waiver of coinsurance clause is to provide flexibility and protection for policyholders by eliminating the coinsurance penalty in certain situations.

How does the waiver of coinsurance clause affect policy premiums?

ncluding a waiver of coinsurance clause in an insurance policy may result in higher premiums to account for the additional coverage provided.

Can the waiver of coinsurance clause be negotiated or removed from a policy?

In some cases, policyholders may be able to negotiate the inclusion or removal of the waiver of coinsurance clause with their insurer. However, this will depend on the terms of the policy and the insurer’s underwriting guidelines.

Key takeaways

  • The waiver of coinsurance clause is a provision in insurance policies that relieves policyholders of the coinsurance requirement under certain circumstances.
  • This clause provides flexibility and protection for policyholders, particularly in situations where the value of the insured property is uncertain or fluctuates.
  • Policyholders should carefully review their insurance policies to understand the terms and conditions, including any provisions related to coinsurance and waivers thereof.

You might also like