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 is the difference between moral hazard and adverse selection?

    Adverse selection occurs when there's a lack of symmetric information prior to a deal between a buyer and a seller, whereas ... Read Full Answer >>
  3. What is the theory of asymmetric information in economics?

    The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >>
  4. What is the difference between the loss ratio and combined ratio?

    The loss ratio and combined ratio are two ratios used to measure the profitability of an insurance company. The loss ratio ... Read Full Answer >>
  5. How do I calculate the combined ratio?

    The combined ratio is a quick and simple way to measure the profitability and financial health of an insurance company. The ... Read Full Answer >>
  6. What does the lapse ratio in the insurance sector measure?

    The lapse ratio measures the amount of insurance policy renewals with respect to the total number of insurance policies at ... 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. Home & Auto

    10 Must-Know Questions To Ask A Home Seller

    To get a sense of what the home you're considering buying is really like, it helps to talk to the seller.
  7. Economics

    What is Adverse Selection?

    Adverse selection occurs when one party in a transaction has more information than the other, especially in insurance and finance-related activities.
  8. Insurance

    Homeowners Insurance Losers: States That Pay Most

    Which states charge you the most for homeowner's insurance? Hint: They're regularly featured on the Weather Channel.
  9. Insurance

    Which States Have the Cheapest Home Insurance?

    You can't choose where you live by its insurance rates. But if you did, these are the states to pick.
  10. Insurance

    How to Use a Waiver of Subrogation

    A waiver of subrogation means that a party to a contract waives the right to allow someone (usually an insurance company) to sue the other party to the contract in case of a loss.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center