Co-insurance Clause

A clause in an insurance policy requiring an insured to carry a certain percentage, usually 80, 90 or 100 per cent of insurance in relation to the value of the property insured. If the insured fails to do this, then he agrees to be a self insurer of all losses large or small in the same ratio as his failure to comply with the percentage required, is related to the insurance required. For example, a building valued at $100,000 with an 80 per cent co insurance clause would require insurance coverage of $80,000. If coverage is carried for only $40,000 then the insured is a self insurer or co insurer for $40,000 of the $80,000, and the insurance company would be responsible for the same amount. This ratio would apply even if a loss were only $5,000. Then the insurance company would pay $2,500 and the balance or co insurance penalty of $2,500 would be borne by the insured.