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. If both the primary and contingent beneficiaries are unavailable, what happens to ...

    One of the most common mistakes in estate planning is not keeping beneficiary designations up to date on life insurance policies ... Read Full Answer >>
  3. What types of insurance policies have contingent beneficiaries?

    A contingent beneficiary is a person designated to receive the benefits of an insurance policy or retirement account if the ... Read Full Answer >>
  4. Do contractors require subrogation clauses for their contract workers?

    Contractors often require subrogation clauses for their contract workers. To prevent a building owner's insurance company ... Read Full Answer >>
  5. Why would a homebuyer need to take out PMI (private mortgage insurance)?

    Most conventional mortgage lenders carry strict requirements for home buyers, including credit history and score minimums, ... Read Full Answer >>
  6. Can you ask your landlord to remove a waiver of subrogation clause from your lease?

    You can ask your landlord to remove a waiver of subrogation clause, but you will both need to agree to its removal or 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. 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.
  7. 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.
  8. 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.
  9. 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.
  10. Insurance

    Insurance Myths Involve Houses, Cars & Big Crashes

    Any confusion over what to buy or how to use a product can end up being costly, but when it comes to insurance, misunderstandings can cost thousands.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center