Most business policies include a “coinsurance” clause stipulating what percentage of the total value of your property must be insured to be fully reimbursed for a loss, even a partial one.
(Most losses are partial.)
If you insure for less than that amount, your insurance company may impose a “coinsurance penalty” on your claim.

Here's how coinsurance works:

Let’s say you have a building insured that you believe would cost $100,000 to replace and a coinsurance penalty in your policy of 80 percent.
You insure the building for $80,000, thinking you have fulfilled the coinsurance clause.
A fire loss causes $60,000 worth of damage, so you submit a claim. Your insurance company subsequently determines that the replacement cost of the building is actually $150,000.
To determine how much to pay on the claim, the insurer divides the amount of insurance you purchased ($80,000) by the amount you should have purchased (80% of $150,000 or $120,000).
The result (two-thirds of $60,000 is $40,000) is the amount of your claim the insurer will pay.

Thus, even for a partial loss within the monetary limits of your policy, you will receive only two-thirds of the amount claimed.
If the building had been insured for at least $120,000, the insurer would have reimbursed you for the full amount of the loss.

You should check with your Trusted Choice® agent to make sure you have adequate coverage.
Adding an endorsement to the policy that automatically increases policy limits to keep pace with inflation is a good idea.

Last updated on July 21, 2010 by [Your Name Here]