ITV, Coinsurance & More

My experience with insurance to value has taught me that this is not an area that should go ignored by commercial as well as homeowner policyholders. Initially, I took a contrarian view as I thought it was the agents job to monitor and maintain the insurance to value on an insured property. Although it is the professional responsibility of the insurance sales professional to meaningfully participate, the main impetus is on the policy holder to make sure the (ITV) is accurate, current and relevant.

What is (ITV)?
Insurance written in an amount approximating the value of the property insured. In other words, the property for various reasons could increase in value and as it does, so should the amount of coverage on the property. A replacement cost (replacement cost is very important when it comes to addressing ITV) calculation (physical inspection in most cases) is the means by which the (ITV) is determined.

(ITV) is important for several reasons:
The insured: Many insurers of homeowners offer "Guaranteed Replacement Cost" coverage--but generally it is only provided in their "preferred" programs and it is limited to a modest amount (usually 20 percent to 25 percent) above the actual amount of coverage purchased. Home improvement a national pastime and construction costs rising, it’s a good idea to check your policy limits once a year. Planning to remodel your home? Just finished adding that new deck or garage or fence in your front yard? It could be time to review your limits.
Therefore, many homeowners may find that their policies will not cover the replacement of their homes, if they face a total loss. So what could happen in the event of a claim wherein the (ITV) is not up to current? The policy holders claim settlement could be reduced for not having the accurate (ITV) and corresponding coverage on the property.

The Insurance company:
When underwriting insured properties, insurers need to obtain accurate insurance-to-value ((ITV)) calculations so they can charge the right premiums for the risks they assume. Adequate (ITV) is not an issue to be taken lightly. If insurers do not receive accurate values for the properties they insure, their premium pricing is based on faulty data and their long-term financial stability could be at risk. In layman’s term’s they need make sure that they are collecting enough many to fully insure the risk.

One of the principle tenants of (ITV) is coinsurance. Simply put, coinsurance is the amount of self insurance you assume per policy agreement. Property coinsurance obligates the insured to keep a specific amount of insurance in force on the insured property, or else face penalties in the event of loss. Typically, the policyholder is regarded as a joint insurer only when insuring property for less than the required portion of its full value; only then does the insured become jointly and proportionately responsible for losses. The required level of insurance may be a stated amount or a percentage of the property value. In the event the insured purchases a policy with a face value equal to or greater than the required amount, coinsurance does not play any role in calculating indemnity on insured losses and a covered loss will be fully insured beyond the deductible.

Next up: The coinsurance clause defined