Waiver Of Coinsurance Clause

AAA

DEFINITION of 'Waiver Of Coinsurance Clause '

Language in an insurance policy that says the insurance company will not require application of the part of the policy that divides responsibility for an insured loss between the insurance company and the policyholder. The coinsurance clause is usually only waived for small losses, such as losses under $10,000. Coinsurance helps to guard against the moral hazard that the policyholder will not purchase sufficient insurance to cover a total loss in order to save money on insurance premiums.

INVESTOPEDIA EXPLAINS 'Waiver Of Coinsurance Clause '

A coinsurance clause requires the policyholder to insure a certain minimum percentage of the property's actual value, such as 80%. Thus, if a building was worth $200,000, the property owner would have to purchase $160,000 of insurance on it. In the event of a total loss, the policy would pay $160,000 and the building owner would be responsible for the remaining $40,000. If, however, the property were really worth $300,000, the building should have been insured for at least 80% or $240,000. Since the owner is only insured for $160,000 when he should be insured for $240,000, he is underinsured and would face a penalty in the event of a loss, unless he has a waiver of coinsurance clause.

RELATED TERMS
  1. Constructive Total Loss

    A constructive total loss is an insurance term where the cost ...
  2. Waiver Of Subrogation

    A special type of endorsement on a property-casualty insurance ...
  3. Waiver Of Demand

    An agreement by the party that has endorsed a check or draft ...
  4. Waiver Of Notice

    A legal document that waives the right to formal notification. ...
  5. Waiver Of Exemption

    A provision in a consumer credit contract or loan agreement that ...
  6. Umbrella Insurance Policy

    Extra liability insurance coverage that goes beyond the limits ...
RELATED FAQS
  1. How does the 80% rule for home insurance work, and how do capital improvements affect ...

    The 80% rule refers to the fact that most insurance companies will not fully cover the cost of damage to a house due to the ... Read Full Answer >>
  2. What kinds of costs are included in Free on Board (FOB) shipping?

    Free on board (FOB) shipping is a trade term published by the International Chamber of Commerce or ICC, that indicates which ... Read Full Answer >>
  3. Why should value investors consider the insurance sector?

    Insurance companies receive steady cash flows for years with irregular payouts. Following these payouts, insurance companies ... Read Full Answer >>
  4. What do insurance companies qualify as hazardous activity?

    An insurance company defines a hazardous activity essentially as any type of undertaking with a high level of risk of injury ... Read Full Answer >>
  5. How much do changes in interest rates affect the profitability of the insurance sector?

    Interest rate risk for insurance companies is a significant factor in determining profitability. Although rate changes in ... Read Full Answer >>
  6. What demographic trends are creating potential profits for insurance companies?

    Insurance companies can profit from demographic trends by marketing and writing specific policies suited to changes in the ... Read Full Answer >>
Related Articles
  1. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  2. Entrepreneurship

    Don't Get Sued: 5 Tips To Protect Your Small Business

    Find out what you can do to limit risk and keep your business running smoothly.
  3. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  4. Home & Auto

    Filling The Gaps In General Liability Insurance

    Standard liability coverage may not be enough. Special needs call for specialized policies.
  5. Insurance

    How To Insure Your Most Important Asset - Yourself

    Insuring your human capital is something often overlooked. Don't make the mistake of leaving your biggest asset unprotected.
  6. Insurance

    Who Needs Extortion Insurance?

    Insurance can help mitigate the financial damage of an extortion plot, but it’s important to read the fine print before taking out one of these policies.
  7. Insurance

    Indexed Universal Life Insurance: The Pros & Cons

    What you need to know, to see if these vehicles fit into your financial plan.
  8. Insurance

    Do You Need Kidnap & Ransom Insurance?

    Americans working abroad – and high-profile individuals traveling frequently in kidnapping hot spots – should consider this type of protection.
  9. Insurance

    A Guide To Kidnap & Ransom Insurance

    Every year, thousands of people are kidnapped for ransom all over the world. This insurance offers protection – and peace of mind.
  10. Insurance

    Should I Insure My Wedding Ring?

    It depends, in part, on the ring's value and your current insurance coverage. Here's a guide to making a decision that's right for you.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!