Insurance on Property - 2.3

Explain how a stated amount coinsurance clause differs from a 90% coinsurance clause.

Answer:

A stated amount coinsurance clause works on the same purpse as a 90% coinsurance clause. They both encourage insureds to maintain a adequate amount of insurance. However they work differently.

1. The Stated Amount specifies the minimum amount of insurance in dollars rather than as a percentage of the actual cash value of the property insured.
2. The Stated Amount simplifies the determination of the adequacy of the amount of insurance, since it is easy to compare the amount of insurace to the Stated Amount coinsurance and the comparason result is valid through out the whole life cycle of the policy. But in the case of a 90% coinsurance clause, the actual cash value must be determined at the time of loss and the adequacy can only be determined at that time.
3. The Stated Amount needs no Waiver of Coinsurance because no calculation of actual cash value is needed to detemine if the coinsurance clause applies to a loss settlement.
4. The Stated Amount expires independently of the policy, usually after a certain number of monthes, but the 90% clause is valid throught out the policy life.
5. The Stated Amount requires an annual Statements of Values so that the amount can be adjusted to reflect the actual value of the property at the time of renewal. The Statements of Values costs both side time and resources and due to this reason, the Stated Amount is more likely to be used when insuring large, high-value complexes under a single item.