An agreed amount clause is a provision in property insurance that an insurer can use to bypass the requirement of coinsurance. It is also sometimes called a waiver of coinsurance clause or an agreed value optional endorsement.

The policyholder is required to sign a statement of the property's value as a prerequisite for including or activating an agreed amount clause in a policy. Agreed amount clauses are available for commercial properties and other types of property.

Specifying the Property's Value

A statement of value or actual cash value is required to specify the value of the property in question. The actual cash value refers to the property's replacement cost, minus any depreciation that has occurred by the time of any loss. This calculation gives you an approximate value that you could sell the property for. This number is always lower than what the cost of replacement would be.

The property value that is detailed on the statement is the figure used to determine policy coverage. As a policyholder, you are required to agree to this amount, and you won't be able to argue it at any later stage. After the statement has been approved, the need for a coinsurance clause in your policy is waived for a period of one year.

The value of the insured property is detailed in the statement of values, which the insured party must sign. This is required by the insurance company so that once a risk is covered, there are legal grounds that can be used to determine the amount of coverage. This removes the risk of the insured questioning this amount in the event of a claim.

If there isn't sufficient coverage in a case where the insured does not have coinsurance, the policyholder is liable for the insufficient funds. This can easily happen in cases where the policyholder has undervalued his or her property in the statement.

Coinsurance Clauses in Different Types of Insurance

A variety of different insurances can include coinsurance clauses. These include the following:

  • Property insurance.
  • Flood insurance.
  • Healthcare.

It is important to note that coinsurance clauses are not used the same way in every type of policy.

Amounts That Are Underwritten

When specifically talking about property insurance, the term coinsurance relates to the amount of coverage that an insurance company underwrites. 80 percent is the usual figure, but certain insurers insist on a higher percentage. This depends on factors such as:

  • The location of the building.
  • The current value of the building.
  • The likelihood of a loss being suffered during the period of the policy's validity.

People tend to insure their properties for less than they should in order to pay a more affordable premium. This is why insurance companies stipulate that the policy a client takes out covers only a certain percentage of the structure's value.

Generally speaking, an insurance company only waives a coinsurance clause for small claims. Some policies incorporate a waiver that applies even if everything is lost. However, property owners pay higher premiums for these policies.

Coinsurance policies stipulate that policyholders need to pay all deductibles prior to the insurer paying out. That means that the policyholder is required to incur greater costs upfront. Thanks to the agreed amount clause, the insurer is required to evaluate the property according to the value that was agreed upon when the policy was initiated.

It is important to note that before the policy expires, the policyholder is required to submit an up-to-date statement of value in order for the agreed amount clause to be renewed. These clauses can prove to be immensely valuable in cases of significant or entire loss.

It must also be noted that if somebody does not have coinsurance on a policy, they are liable to pay the balance themselves in a case where coverage does not fully compensate for the loss. This commonly happens if a property has been undervalued.

A serious problem related to coinsurance is that it applies to the value of a property at the time of the loss. It is not related to the value at the time of the policy's inception, which is usually when the insurance amount is determined.

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