Determining Loss Payout on Flood Policy

 

Is coinsurance a factor in determining a loss payout on a flood policy?

In order to receive loss settlement based upon replacement cost for a single-family principal residence, it will be necessary to insure the dwelling at 80 percent or more of its full value, subject to the maximum limit (currently $250,000). If the limit purchased is less than 80 percent of the full value, then a coinsurance penalty could be imposed on the loss settlement only if the purchased limit is less than the maximum of $250,000. If that purchased limit is less than 80 percent and less than $250,000, then the insured will receive the greater of 1) the actual cash value of the property damaged, or 2) the replacement-cost value of the property damaged after application of the coinsurance penalty.

Example 1

An insured with a replacement-cost value of $300,000 insures the dwelling for $240,000, or 80 percent of the value. No penalty would be applied because it was insured for 80 percent of its value.

Example 2

An insured with a replacement-cost value of $300,000 insures the dwelling for $120,000, or 40 percent of the value. Only 50 percent [$120,000 (did)/$240,000 (should)] of the replacement-cost value of the property damaged will be paid or the actual cash value of the property damaged, whichever is greater.

Example 3

An insured with a replacement-cost value of $500,000 insures the dwelling for $250,000, or 50 percent of the value. No penalty would be applied, even though it was insured for less than 80 percent of its value because it was insured at the maximum amount.

Example 4

An insured with a replacement-cost value of $500,000 insures the dwelling for $200,000, or 40 percent of the value. Only 80 percent [$200,000 (did)/$250,000 (should)] of the replacement-cost value of the property damaged will be paid or the actual cash value of the property damaged, whichever is greater.

Example 5

An insured with a replacement-cost value of $300,000 insures the dwelling for $30,000, or 10% percent of the value. Only 10 percent [$30,000 (did)/$250,000 (should)] of the replacement-cost value of the property damaged will be paid or the actual cash value of the property damaged, whichever is greater.

All are subject to the limit of insurance on the policy.

So, yes, coinsurance is a factor in determining a loss payout on a flood policy.