Garage Insurance: What’s the Deal with Co-Insurance?

As the owner of a garage and auto body shop, you understand that the risks you face are nothing short of unique. As a result, you invest in reliable garage insurance to cover all aspects of your business; employees, liability, building, equipment, etc.

Let’s talk about your building insurance. As an insurance agency, we understand your desire to insure your building for what it is “worth.” Some think “worth” is the local tax or bank appraised value; others think “worth” is the price at which you can sell it and some believe “worth” to be an amount equal to what they feel would be the probable damage the structure would suffer.
In fact, “worth” to an insurance company is typically expressed as replacement cost (the cost in today’s dollars to rebuild the structure from the foundation up).
Let’s take an example. Let’s say you purchase a $100,000 policy with a $1,000 deductible for a building with a replacement cost of $1,000,000, under the belief that any loss suffered would probably be less than the $100,000 of coverage you purchased. A loss occurs due to a fire and destroys $50,000 of the building. All set, right? After all we purchased $100,000 of coverage!
Not so fast. The appraiser is likely to arrive and ask you. “Did this $50,000 damage occur in the $100,000 part of the building you insured or the $900,000 part that you didn’t insure?”
Interesting question! To determine the answer we need to look at the policy. Generally, all policies contain a co-insurance clause as part of the contract. This says if you insure just a part of the building the company will pay only a part of the loss.
In the above example, if the policy had a 100% co-insurance clause in the contract, that means that the insurance company expects you to insure 100% of the replacement cost of the property.
You only insured 1/10th of your building’s replacement value; so an insurance company is going to give you 1/10th of the damage (less your deductible). In the example above, that you suffered damage of $50,000, so you will receive a check for $4,000 ($50,000 x 1/10 of the building you insured… less your deductible of $1,000). You will be responsible for the rest!
It is critical that you understand how your policy works or you may find yourself co-insuring your property with your insurance company.
If you have any other questions or concerns about your garage insurance coverage or co-insurance, do not hesitate to speak with our experts at Wolpert Insurance. If you would like to request a free garage insurance quote, do not hesitate to do so! We would be happy to provide you with one. Just fill out the form on our website!