May-June 2016

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22 PalletCentral • May-June 2016 The Three Deadly Sins Of Property Insurance for Pallet Companies By Dennis P. Bilancia LIC, AAI, AIS id you know that many insurance policies include hidden penalty clauses buried deep within the fine print? Insurance companies are quick to invoke these clauses in order to reduce or deny coverage following a loss. Let's look at the three main penalty clauses found in most property policies: 1. Coinsurance "What do you mean the insurance company is only going to pay for one-half of the damages?" A coinsurance clause allows the insurance company to automatically reduce the amount of their property loss settlement if, in their opinion, you did not maintain adequate insurance values at the time of a loss. Most policies that include a coinsurance provision will display a coinsurance percentage on the declarations page (usually 80%). At a minimum, this percentage is the proportion of the replacement value that the insured promises to maintain. In other words, the insured is promising the insurance company that it will maintain insurance values of at least 80% of the actual replacement cost of the property. As long as the insured keeps their promise, there is no penalty. On the other hand, if the insured did NOT maintain an insurance value of at least 80% of the actual replacement cost, the insurance company will reduce the amount of their loss settlement in proportion to the amount they were underinsured. For example, assume that you suffer a $300,000 fire loss to a building with a coverage limit of $500,000. After the loss, the insurance company will do their own post–loss assessment of the replacement cost value. Let's say they determine that the actual replacement cost of the building was $1,000,000, not the $500,000 that you insured. In this case, the policyholder only insured 50% of the actual replacement cost when they should INDUSTRY D Samokhin

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