If you are considering purchasing an insurance policy with a co-insurance requirement, it is essential to understand the concept of co-insurance and the potential implications for your coverage.
Co-insurance is defined as a relative division of risk between the insurer and the insured, dependent upon the relative amount of the policy and the actual value of the property insured. Co-insurance clauses require the insured to maintain insurance on the property covered by the policy in a certain amount, and stipulate that upon his failure to do so, the insured shall be a coinsurer and bear his proportionate part of the loss on the deficit.
The Significance of Co-Insurance
Co-insurance goes beyond simple cost-sharing; it should significantly influence your financial planning and risk management strategies. By agreeing to higher deductibles and co-insurance percentages, you can effectively lower premiums, making insurance more affordable without sacrificing coverage quality.
Moreover, co-insurance promotes an equitable distribution of financial risk between you and your insurer. This sharing mechanism ensures that neither party bears the full burden of the financial costs associated with covered losses, fostering a balanced approach to risk management.
For instance, insurance policies that protect against hazards such as fire or water damage often specify that the owner of the property may not collect the full amount of insurance for a loss unless the insurance policy covers at least some specified percentage, usually about 80 percent, of the replacement or actual cost of the property, depending on the relevant policy provisions. Co-insurance provisions are not allowable under the proviso in N.C. Gen. Stat. 58-30.1 unless the words “coinsurance contract” are printed or stamped on the policy. Surratt v. Grain Dealers Mut. Ins. Co., 74 N.C. App. 288.
Potential Ramifications of Non-Compliance: Don’t Be Surprised
Failing to comply with co-insurance requirements can have consequences. Your insurer may attempt to impose coverage limitations or deny claims altogether, leaving you exposed to significant financial losses during critical situations.
Persistent non-compliance could lead to the termination of your policy by your insurer, leaving you without essential coverage and vulnerable to increased risks and financial instability.
In cases of continued non-compliance, your insurer may resort to legal action to recover unpaid amounts or seek damages for breach of contract, among other potential legal claims.
Upholding Responsibilities and Preserving Rights
Understanding any co-insurance requirements within your insurance policy is crucial to safeguarding your property and financial well-being. By fulfilling your obligations, you mitigate financial risks and foster a mutually beneficial relationship with your insurer. If you are not sure if you have a co-insurance requirement in your policy, request a certified copy of your policy from your insurer and send it to us. Our law firm can review your policy and help to explain its provisions to you.