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Coinsurance Explained | Real Estate Prep Exam Video - YouTube
Channel: The Real Estate Classroom
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hey everyone if we're meeting for the
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first time my name is paul vachesky and
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welcome to the real estate classroom
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youtube channel where our mission
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is simple to help you pass your real
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estate licensing
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exam in today's video we're going to
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cover a real estate math problem it's
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called
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coinsurance or calculating coinsurance
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it's a math problem that you have to
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know for your real estate licensing exam
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so let's take a look at today's video
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so in today's real estate exam prep
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video we're going to discuss a concept
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called
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coinsurance now coinsurance is a real
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estate
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math problem that you have to know for
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your real estate licensing exam in
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particular for those
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broker candidates not to say that you
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won't have it on your salesperson's exam
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if your state has
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two separate licenses but definitely on
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your broker's exam
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and if you are a property manager and
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you
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you manage any kind of property other
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than single-family homes you definitely
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need to know how to do
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this calculation and that's where you're
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really going to see it now co-insurance
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co-insurance now first of all
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co-insurance has nothing to do with
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um has nothing to do with your health
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insurance like
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co-insurance where you have two types of
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insurance for health
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this has nothing to do with that it's
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typically for non-residentially
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zoned types property it's typically for
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your larger apartment communities
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commercial properties
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industrial office those type of things
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and
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and the the key here is your
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co-insurance carrier is going to have a
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certain level
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of co-insurance coverage that the owner
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is going to be required to maintain
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and typically it is a certain percentage
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of the replacement cost or the market
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value depending on the carrier and i've
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seen it go both ways
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typically it's 80 percent so a carrier
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is going to require the owner to
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maintain
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80 percent coinsurance of
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the replacement cost or 80 percent
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coinsurance of
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the market value it's very important
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that if you're the property manager or
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the owner
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and you're required to have co-insurance
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that you maintain or stay on top of what
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the new replacement cost is
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or the the new market value and
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typically you want to do a
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some type of market analysis every year
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to make sure that you're fully coveraged
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now if the owner doesn't maintain that
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coinsurance coverage
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as required by the policy then what
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happens is if there is a
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casualty and you make a claim to your
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co-insurance carrier
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then you're going to get less all right
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your check's going to be a lot less than
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it normally would be
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and the other thing is is for whatever
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reason students get hung up on
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deductibles with this type of insurance
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coverage we really don't
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see deductibles like you would in your
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normal homeowner's insurance policy or
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with your automobile policy
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it's calculated differently so i'm going
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to show you how to calculate
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coinsurance so let's take a look at this
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now the great thing about calculating
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coinsurance coverage is
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the formula is very simple to remember
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it's did divided by
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should times claim equals the amount of
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your check
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now what that stands for is how much
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coinsurance coverage did the owner have
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divided by
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how much coinsurance coverage should the
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owner have had
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times the amount of the claim that
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you've submitted to your co-insurance
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carrier
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and when you do the math that will equal
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the amount of
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your check that you're going to receive
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to make those repairs
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on the property so let's put this into
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practical terms here and add some
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numbers to this formula
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number one and i got your formula up
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there the first step
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to this and the good thing is there's
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five steps to figure out this formula
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step one we have to find out what is the
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the amount of co-insurance coverage
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let's say in our example the replacement
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cost of this commercial building or the
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market value of this building is a
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million dollars
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and the co-insurance carrier requires
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the owner to maintain 80 percent
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co-insurance is 80 so we just do the
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simple math we take a million dollars we
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multiply it by 80 percent
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that gives us a co-insurance coverage of
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eight hundred thousand dollars meaning
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the co-insurance carrier is going to
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require that owner
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the should part that owner should
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maintain
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eight hundred thousand dollars in
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coinsurance coverage
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that's step number one step number two
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is we have to find out how much
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coinsurance coverage did the
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owner actually have so let's say in our
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example the co-insurance coverage or the
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owner did have 800
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000. all right so now we have the did
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and the should
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the owner did have 800 000 in insurance
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coverage
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they should have had 800 000 in
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insurance coverage so
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let's calculate what happens when
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there's a claim step three
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we determine the amount of the claim
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that we're going to submit to the
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insurance
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uh carrier and our scenario let's say a
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storm came through and there was a
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hundred thousand dollars in
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in damages to the property so we have
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all the
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the essential elements we need to do the
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calculation
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so we take using our formula divided by
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should
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times the claim we take 800 000
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which is the amount of coverage that the
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owner did have we divide it by
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800 000 which is the amount they should
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have had that means
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our co-insurance coverage is a hundred
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percent
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a hundred percent so step five the final
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five or this final step here we put in
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our
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our damages so we have a hundred
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thousand dollars which is the amount of
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our claim
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times a hundred percent that is our
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co-insurance coverage from step four
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when we do the math that means
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the the co-insurance carrier is going to
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give us a check for a hundred thousand
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dollars that means they are going to
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hundred thousand dollars of the claim
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which is basically the entire claim
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pretty simple when it's a hundred
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percent across the board
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the owner did their part but what
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happens when the owner
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has less their insurance coverage that
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they did have was less than what they
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should have had
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and how does that happen first of all it
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happens when
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the owner for example let's say the
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coinsurance carrier
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uh is doing it based on the market value
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of the property and the owner for
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two or three years just didn't keep up
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with the market value
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accurately therefore they didn't keep up
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with the
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uh the coverage that they should have
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had so let's look at
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an example here following the same five
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steps in using this formula
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step one is we need to determine what
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how much coinsurance coverage should the
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owner have had and
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again doing the math it's a million
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dollars times eighty percent
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equals eight hundred thousand dollars in
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coverage
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that is the should step two is finding
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the did
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how much coinsurance coverage did the
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owner have
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so let's say that we discover
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that the owner only had six hundred
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thousand dollars that's how much
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they did have all right so we
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then we have a hundred thousand dollar
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claim because a storm came through now
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we have the three elements that we need
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to do our calculation
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so let's look at step four we
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we divide we take six hundred thousand
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dollars which is the co-insurance
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coverage that the owner did have
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we divide it by 800 000 which is the
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coinsurance coverage they should have
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had that gives us a percent of a
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percentage of coinsurance coverage of 75
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percent
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so that's less than the hundred and when
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we include step five here
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remember we take the amount of the claim
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which is a hundred thousand dollars
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we multiply that by our our coinsurance
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coverage that we calculated in step four
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which is 75 percent
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and the insurance company is going to
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pay seventy five thousand dollars
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on that hundred thousand dollar claim
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so as you can see it's very important
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that as an owner or a property manager
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that you always maintain that proper
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amount of co-insurance coverage
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and making sure that the replacement
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cost value or the
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market value is always properly being
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updated to make sure that you have the
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proper coverage
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if you're going to continue studying i
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highly recommend that you check out this
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video right here
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if you have not subscribed to the
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channel please do so there's a lot of
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benefits for me
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click the little circle to the to the
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left there and then comments questions
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down below
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in the comment section i would
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appreciate it that's all i got for this
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video guys i'll see you
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in the next video
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