Common use of COINSURANCE CLAUSE Clause in Contracts

COINSURANCE CLAUSE. This clause generally provides that in consider- ation of a reduced rate, the borrower agrees to maintain insurance on his buildings up to a specified percentage (usually 80 percent) of their value and that the company will not be liable for a greater proportion of any partial loss than the amount of insurance bears to RHS, RBS, RUS, FSA, USDA § 1806.2 the specified percentage of either the undepreciated replacement value or the depreciated replacement value or the depreciated replacement value (ac- tual cash value) of the buildings at the time of the loss. When the buildings are insured for the specified percentage of their value, the company, in the event of a partial loss, will be liable for the full amount of the loss not to ex- ceed the amount of insurance. A coin- surance clause can be accepted only where the amount of insurance is at least equal to the specified percentage of either the undepreciated replace- ment value or the depreciated replace- ment value (actual cash value). For ex- ample, an 80 percent coinsurance clause can be accepted only where the amount of insurance on each insured building is at least equal to 80 percent of the appropriate replacement value of the insured building.