Co-Insurance

Coinsurance is a term used in the ever-evolving world of property insurance that does nothing to benefit the property buyer. Let’s say you want to buy a house that’s worth a $500,000. The insurance policy might have an 80% coinsurance clause, which means it must be insured for $400,000.

But...there’s a catch. Because the property is insured at its value at the time of its loss.

So, if that house is now worth $600,000, and the 80% coinsurance policy requirement insures just $400,000, you’re going to not only pay a penalty, but also get a smaller claim payout. Pretty much all insurance policies have one of these coinsurance clauses, and never in the history of this industry has coinsurance ever resulted in a payout higher than its claim.

The best-case scenario is that it doesn’t reduce your settlement. And people wonder why Warren Buffett’s Berkshire Hathaway owns so many insurance operations. Co-insurance is a massive fee-taking scheme.