One of the biggest risks real estate investors face is damage to their property. For years, many investors have tried to reduce costs by undervaluing their properties when it comes to insurance. However, with construction costs skyrocketing by 25%-30% or more over the past three years, this strategy could end up costing far more in the long run.

As J. Krug, a Property Insurance Specialist, explains, if you suffer a loss today and are underinsured, you may not have enough coverage to fully rebuild your property. This is where co-insurance comes into play, and it can make an already bad situation even worse. With co-insurance, you’ll be sharing the cost of claims with your insurance company, and the higher your co-insurance percentage, the greater your out-of-pocket expenses.

For example, let’s say you have a 20% co-insurance clause. This means that unless you insure your property to its full value, your insurance company will pay out 20% less than your claim should be. Here’s a scenario to illustrate: You have a $1,000,000 property that should be insured for at least $800,000 to meet the 20% co-insurance requirement. But instead, you insure it for only $600,000, with a $1,000 deductible. If a fire causes $100,000 in damages, the insurance company will calculate your payout based on the co-insurance formula.

In this case, they will cover only 75% of the loss ($600,000 divided by $800,000). So, for a $100,000 claim, you would receive only $75,000 minus the $1,000 deductible. This leaves you with a payout of $74,000—much less than you expected, and all because you weren’t fully insured.

J. Krug, a trusted Property Insurance Specialist, emphasizes the importance of understanding your co-insurance obligations and ensuring that your property is adequately insured. Failing to do so could leave you with significant financial gaps when you need your coverage the most.

If you’re unsure about your current co-insurance or if you feel you might need an insurance review, don’t hesitate to reach out to J. Krug, a Property Insurance Specialist. With expert guidance, you can protect your real estate investments and avoid costly surprises down the road.