What is a co-insurance clause?
A co-insurance clause is a type of insurance clause found in a policy that requires the insured to carry and maintain a certain level of coverage as a condition of the policy. Co-insurance clauses are often found in property insurance policies in the state of Tennessee. Essentially, they require the policyholder to maintain a certain level of coverage in order to be eligible for the full policy coverage. For example, an insurance policy may require the policyholder to maintain 80% of the total insured value of the property in order to qualify for full coverage. If the policyholder fails to maintain the specified level of coverage, they may be partially responsible for covering any losses they incur. This means that if a policyholder fails to maintain the specified level of coverage, they may be responsible for a percentage of the losses up to the amount that they would have been covered for had they kept the coverage up to date. The amount of the loss the policyholder is responsible for is determined by the amount of coverage they were required to carry, and the amount of coverage they had at the time of the incident. For example, if a policyholder was required to carry 80% coverage and only had 75% coverage at the time of the incident, they may be liable for 5% of the loss. In general, co-insurance clauses are designed to encourage the policyholder to properly maintain their coverage and to help protect the insurer from paying out more than they are obligated to under the policy. They also help ensure that policyholders are adequately covered in the event of a loss.
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