Coinsurance refers to the minimum amount of coverage that must be carried in order to receive 100% of a loss payout. For instance, 90% coinsurance on a building means your building limit must be equal to or greater than 90% of the building’s reconstruction cost. Using an insurance limit less than the coinsurance minimum will result in a penalty to ALL loss payouts, regardless of whether there is a total loss. For example: say you have a 10,000sqft, 10 lane bowling center insured for $1M that has a $100,000 kitchen fire. Using our coverage calculator, you learn that the 100% replacement cost value is $1.6M. At 90% coinsurance, the insurance company will divide what you insured for ($1M) by the minimum amount you should have insured for ($1.44M) and multiply that ratio by the loss. In this scenario, you’d only be paid $69,444.00 minus the deductible. That’s more than $30K less than you need to rebuild! Don’t underinsure! It’s the No. 1 mistake we find on bowling center policies across the country!
Most bowls have heard that there are Admitted insurance carriers and non-admitted insurance carriers. While one inherently sounds better than the other, the biggest difference between the two is that an Admitted carrier abides by all the insurance laws and regulations of your state, whereas a non-admitted carrier is not required to. It is not illegal to buy from a non-admitted carrier, however, you do put yourself at risk. A non-admitted carrier is NOT backed by your state’s insurance guarantee fund. In the event that a carrier becomes financially insolvent, your Admitted policy’s claims will still get paid by the State. The non-admitted carrier’s claims will NOT be paid–effectively leaving you nothing but a stack of worthless paper.
The most common misconception about replacement cost is that the insurance will pay whatever it takes to replace damaged property. This is not necessarily true. Replacement cost means the insurance company will pay to replace your damaged property with like kind or value property. This means your 10 year old equipment will be replaced with equipment that is similar to or equal in value to your 10 year old equipment–NOT brand new. Often times, the insurance company will write you a check instead of outright replacement, but the important thing to remember is that they won’t write you a check to go out and buy brand new property unless the damaged property was brand new at the time of loss.
All Risk/Special Form
You might think that “All Risk” means you have coverage no matter what happens! Wrong! All risk just means all causes of loss are covered except what is excluded. Common exclusions include earthquake, flood, employment practices related to harassment, discrimination, or wrongful termination, war, and wear and tear. The most important part of your policy is the exclusions section!
Business Income Coverage
Business income (often with extra expense) coverage is one of the most valuable, yet least understood coverages on your policy. In the event you have to temporarily shut down all or a portion of your business, this coverage will pay for your operating expenses and net lost revenue due to the covered loss. While most insurance agents use 100% of a bowl’s annual revenues as the business income limit, this is actually poor practice. In the event you have to shut down, your operating expenses will be less than when you are 100% operational. You will have fewer labor and utilities costs for instance. Extra Expense coverage (if added) pays for most extra expenses that may be required to get your business back up and running more quickly. It is best practice to use between 50%-75% of your annual revenues as the proper limit along with a 50%-75% coinsurance clause.
Employment Practices Coverage
Most proprietors are surprised to learn that their insurance does NOT cover lawsuits related to sexual harassment, wrongful termination, discrimination, wage & hour disputes, and Americans with Disabilities Act (ADA) violations. As one of the fastest growing areas in litigation nationwide, we strongly encourage proprietors of all sizes to purchase an Employment Practices Liability Insurance (EPLI) policy. These days, an employee can make up any story (and they do!) to extort a settlement out of a business owner who is left paying for attorneys fees out of their own pocket. In today’s market, these policies are very affordable and we encourage every proprietor to secure a quote.
Equipment Breakdown Coverage
Included on most policies, its important to understand that equipment breakdown coverage will NOT pay to repair your HVAC system just because it’s broken down. This coverage ONLY pays for repair to your equipment due to a covered loss. These typically include: lighting strike, power surges, and/or internal explosion of steam boilers. Make sure your agent goes over exactly what equipment breakdown coverage will pay for.