Misunderstood Property Ins. Issues (Part 1)

Page 3 of 7

Coinsurance on business income

Business income insurance CAN be written with a coinsurance requirement/clause. Lowest rating factors applied equals the lowest rate per $l00.00 of property value. Note that the highest amount of insurance is required to meet the conditions of the coinsurance form. Coverage can be suspended with the Agreed Amount option.

Alternatively, business income insurance can be written WITHOUT coinsurance. Either a monthly limit of indemnity or a maximum period of indemnity can be set. Higher rating factors come into effect, though less insurance is required for business income.

Coinsurance rating factors: Business income without extra expense

Coinsurance rating factors: Business income WITH extra expense

Definition of "Business Income"
For coverage purposes, the definition of "Business Incomes" is as follows:
"1. Business Income
Business Income means the:
a. Net Income (Net Profit or Loss before Income Taxes) that would have been earned or incurred and
b.Continuing normal operating expenses incurred, including payroll incurred.

E. Additional Condition Coinsurance
a. The Coinsurance Percentage shown for Business Income in the Declaration times
b. The Sum of:
(1) The Net Income (Net Profit or Loss before Income Taxes) and
(2) All operating expenses, including payroll expenses, that would have been earned (had no loss occurred) by your "operation" at the described premises for the 12 months following the inception, or last previous anniversary date, of this policy (whichever is later)."

Coinsurance selection
The formula for selecting coinsurance can be seen below:

PROFIT + CONTINUING OPERATING EXPENSES

Divided by

PROFIT + ALL OPERATING EXPENSES

Equals

PERCENTAGE OF COINSURANCE

The percentage of coinsurance takes into account considerations such as estimated longest foreseeable shutdown and estimated additional start up time and expenses.

Business Income and Agreed Value
The following information about Business Income and Agreed Value comes from the Agreed Value Optional Coverage section:
"Under this coverage, the Coinsurance Condition of the Business Income Coverage Form is suspended for insureds who agree to carry a limit of insurance equal to at least:
a. The Coinsurance Percentage shown in the Declarations; times
b. The amount of Net Income and Operating Expenses for the 12 months following the inception date of coverage."

The coinsurance minimum is 50%. For rate modification, multiply the business income rates by l.l.

Next Page >

Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.