Protect Your Property with Adequate Insurance: Avoid Costly Coinsurance Penalties

A person is holding a terms and agreement form

As homeowners, we invest a significant amount of time, effort, and money into our properties, making them our most valuable assets. While insurance is a crucial component of safeguarding our homes, it is equally important to ensure that we are adequately insured. At Centennial Roofing, we understand the significance of comprehensive coverage and the potential risks of being underinsured. We help clients by shedding light on the importance of having your property insured for the appropriate amount and the potential pitfalls of coinsurance penalties.

It’s essential to have an accurate estimate of your property’s value when obtaining insurance coverage. As time passes, inflation can significantly impact the cost of materials, labor, and rebuilding expenses. Failing to adjust your coverage to account for these changes can leave you vulnerable in the event of a loss.

Coinsurance penalties can be a harsh reality for homeowners who are underinsured. Simply put, coinsurance is the requirement that you maintain coverage equal to a specified percentage of your property’s total replacement cost. If you fall short of this requirement and experience a loss, you may face financial repercussions.

When you are underinsured and a claim is filed, the insurance company will compare your coverage limit to the required coinsurance percentage. Let’s say your policy has an 80% coinsurance clause, and your property’s replacement cost is estimated at $500,000. This means you should have coverage of at least $400,000 (80% of $500,000). If you only have coverage of $300,000, you would be underinsured by $100,000.

The implications of being underinsured can be severe. If you experience a covered loss, the insurance company may apply the coinsurance formula to determine the amount they will pay out. In this scenario, if your loss amounts to $100,000, the insurance company would only cover a portion of the claim.

To avoid the risks associated with underinsurance and coinsurance penalties, we recommend an annual review of your insurance policy with your insurance agent. This ensures that your coverage keeps pace with inflation and accurately reflects the current replacement cost of your property. An experienced agent can provide valuable insights and guidance, helping you make informed decisions about your coverage.

At Centennial Roofing, we believe that protecting your property goes beyond installing a durable roof. Adequate insurance coverage is crucial for safeguarding your investment against unexpected losses. By maintaining the appropriate amount of insurance and keeping up with inflation through annual policy reviews, you can avoid the pitfalls of coinsurance penalties and gain peace of mind knowing that you are adequately protected. Don’t wait until it’s too late—reach out to your insurance agent today and ensure your coverage is up to date.

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