In addition, it’s important to make sure that your valuation remains accurate over time so you aren’t blindsided by unexpected penalties. If you guess at the value of your property, you could find yourself paying coinsurance penalties if the insurer finds that the estimate wasn’t accurate. When you purchase a commercial property insurance policy, it’s a good idea to conduct an appraisal of your property to make sure you value your property accurately. The business would need to cover the remaining $120,000 on their own. Instead of paying for the full $300,000 claim, the insurer will only pay for 60% of the loss, or $180,000. Because the business has only insured 60% of the value of its property-$600,000 coverage on property valued at $1 million-the insurer will apply a coinsurance penalty. When the insurer appraises the property, it’s valued at $1 million. The insurer requires a coinsurance minimum of 80%.
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