Assisted Living Facility and Personal Care Homes: Understanding Coinsurance
Determining the correct amount of coverage for your assisted living facility can be difficult, especially if your agent has not counselled you on commercial property coverage in the past. The goal of this article is to break down the “Coinsurance Clause” found in most commercial property policies in order to help evaluate the amount of coverage you are required to carry.
Unlike most residential homeowners policies, commercial property insurance limits are typically provided by you, the client. The coinsurance clause requires the building/contents to be insured to a specific percentage of their replacement cost. If the property is insured for less than the coinsurance amount, a penalty will be assessed in the event of a claim, thereby reducing the amount you can recover from the loss.
Typical coinsurance amounts are 80%, 90% or 100%. In order to determine the minimum amount of coverage on your policy, multiply the replacement cost by the coinsurance percentage. For example, if a building has a replacement cost of $1,000,000 and the coinsurance amount is 90%, the minimum amount of coverage you are required to carry is $900,000.
It is important to note that replacement cost varies from year to year, typically increasing. The best practice is to aim to insure the property for the full amount of the appraised replacement cost and to re-evaluate each year at renewal with your insurance agent.
Jeff Schmidt – Senior Living Insurance Specialist
This article is for informational purposely only. There is no legal advice being suggested or proffered and the author assumes no responsibility or liability for the actions taken or not taken by the readers based upon such information.