Co-insurance is a common clause that insurance companies include for policies covering buildings, contents and other property. The clause generally ensures that policyholders carry appropriate insurance coverage and receive a fair premium for their insurance policy.
The co-insurance clause is a provision in an insurance policy that requires the policyholder to carry a limit of insurance that is equal to the value of the property being insured. The limit must be at least equal to a specified percentage of the property’s value.
The main purpose of this clause is to encourage policyholders to adequately insure their property, and insurers typically impose it.
If the value reported by the insured to the insurance company is below a specific threshold, they will receive less than full payment for any incurred loss.
It is helpful for farm insurance when it comes to outbuildings, which are structures on your farming property that are not part of your house or the main building.
Before proceeding with co-insurance for farm outbuildings, one must understand what is considered an outbuilding. Garages not attached to the home, repair shops, barns, hay sheds, implement sheds, slurry and fertilizer tanks, granaries, silos, riding arenas, feed mills, seed cleaning plants, and biotech shelters are a few that are considered outbuildings.
If you own farmland, you likely have at least one of these structures on your property, making it crucial to insure them.
What does an 80% Co-insurance mean for an Insurance policy
If the co-insurance requirement on your insurance policy is 80%, which means that at the time of loss, the declared value (limit of insurance on the policy for that item) must be no less than 80% of the replacement cost of that building.
Failure to comply with this requirement will result in a “co-insurance” penalty (you will be required to share in the loss to the same proportion that you are underinsured, below the 80% requirement) on the claim payout.
The stated percentage is usually 80%, 90%, or 100% of the property value for a co-insurance clause. For example, a $1 million building with 80% co-insurance must be insured for no less than $800,000. If the policy holder chooses to insure the building for less than $800,000, they agree to retain part of the risk with the insurance company. The policy holder becomes the co-insurer and absorbs the co-insurance penalty when there’s a claim.
How Does Co-insurance Work?
The following is an example of how this clause would come into play following a loss.
Limit of insurance on the policy = $300,000
Estimated replacement value = $500,000
Minimum to satisfy Co-insurance = $400,000 (80% of $500,000)
Amount of loss = $200,000
Benefits of Co-insurance for Farm Outbuildings
Co-insurance requires you as a policyholder to take on some of the responsibility both before and after the agreement, and there are some benefits to this:
- Stable Premiums: With everyone insuring buildings to value, appropriate premiums are calculated, and there are small fluctuations in premiums every year as premiums collected are enough to pay for losses.
- Promotes Consumer Responsibility: Assuming that your insurance policy covers the full value of your possessions guarantees complete coverage in case of total loss.
- Financial Stability for Insurance Providers: By having enough money to pay for losses because of insurance to value, insurance providers can better manage financial risks.
Potential Drawbacks of Co-insurance for Farm Outbuildings
While there are many benefits to co-insurance for farm outbuildings, one potential drawback is the complexity of the calculations.
When it comes to co-insurance, professionals use a formula that takes into account certain percentages. However, this formula can be quite complex and difficult to understand. That’s why it’s important to speak with an official from your Insurance Company.
They have the expertise and knowledge to provide you with all the details you need to make an informed decision about your farm insurance. So, don’t hesitate to reach out to them and get the help you need.
Why You Should Insure Farm Outbuildings
Most farm insurance policies, like home insurance policies, will cover your home and belongings. Farm insurance policies protect the traditional farm, including land around the house, raising animals and cultivating crops. Therefore, a standard farm insurance policy may not cover your advanced farming needs.
Outbuildings are like your home on the property as these include structures and buildings that house your equipment, livestock, and everything else that allows you to grow and maintain your farmland. Insurance for outbuildings contains coverage for storage buildings, garages that house your tractors and equipment, barns, stables, and more.
Any damage to these outbuildings can result in significant losses for you and your family, both in monetary loss and emotional distress. Knowing you can recover financial loss is satisfying for any farmland owner.
Additionally, you have the option of insuring each building or structure individually based on their value. This means that if you have a new barn, for example, it can be covered for its replacement cost. In the event of a loss, the damage can be repaired, or the building can be replaced.
Co-insurance for Farm Outbuildings: Final Thoughts
When you’re thinking about co-insurance for your farm, it’s important to inquire about outbuilding coverage. Speaking with an MMI Insurance expert and gaining a better understanding of the calculations and various aspects of the coverage can assist you in making the appropriate decision.
For more information about co-insurance for farm outbuildings or to get a quote for your farm call MMI Insurance at 866‑222‑6996 or contact us here.
Coverage is subject to policy wording, terms, conditions, and deductibles. Protection is limited to the perils, coverage, exclusions, and limits shown on the policy.
