Hello, Chris Greene here with the Flood Insurance Guru and today  we're talking about what is coinsurance? is it required on flood insurance? and how does it relate to flood insurance? First of all, let's just talk a little bit about what exactly coinsurance is?

Coinsurance is a provision that is put it into many property insurance policies and it's ultimately a way for the insured, which would be the property owner, and the insurer, which would be the insurance carrier, to share responsibility for risk. It also helps reduce the cost of insurance policy premium.

Coinsurance can be written a 80/20 rule, a 90/10 rule or even 100% rule. For example, if 80% rule is in place, which generally is the majority, the insurance company is responsible for 80% and you the insured are responsible for 20% plus deductible. Now, when the 80% rule applies is let's say that you are insuring a house for $1 million or a property has got a replacement cost of $1 million and you insure it for less than $800,000. This is where the 80% coinsurance clause would kick in. So of course you would have your deductible and then you may have what's called a penalty for not caring at least 80% insurance on this property. And so instead of getting the $1 million dollars you might have replaced for or the $800,000 you had it insured for, minus your deductible.

 So you may not get but say, $500,000 or $600,000 or Whatever you have it insured at. So you are going to be paying a penalty there.

So let's talk about coinsurance when it comes to flood insurance. According to the National Flood Insurance Program, coinsurance only applies when looking at residential condo policies or condo association policies. When it comes to your traditional single home policy, coinsurance does not apply when it comes to standalone flood insurance. This same rule applies on the private market when it comes to flood insurance.

When it comes to flood insurance, flood will cover up to whatever the stated amount is. So generally with the National Flood Insurance Program, it's going to be $250,000. Well, one of the reasons why coinsurance does not apply on a national flood insurance program is they only offer up to $250,000, so if you have a $400,000 house, you couldn't insure it for 80% if you wanted to on flood through the National Flood Insurance Program.

You know, of course you'd have to take out a National Flood Insurance Program policy, then you have to take out an excess flood insurance policy on top of that to get to the $400,000 and those are two different types of policies.

So, this is one of the main reasons why on the private side, just like the National Flood Insurance program, it covers up to that stated amount. Now, private might go all the way up to $10 million, but they still don't have that coinsurance clause built in.

So this is kind of how coinsurance applies when it comes to property insurance. Is it required on flood insurance? Only on those condo association policies.

So if you've got questions about coinsurance, insuring your property the correct way when it comes to flood insurance, please visit our website FloodInsuranceGuru.com, subscribe to our YouTube channel, like our Facebook page, and also subscribe to our Flood Guru podcast. You can also give us a call (205) 451-4294. Thank you.

Chris Greene

Author

Chris Greene

President of The Flood Insurance Guru
M.S. in Emergency Management with a focus in Flood Mitigation
flood@communityfirstagency.com