Agreed Value / Coinsurance Waiver

A coinsurance clause is a condition inside a property policy that requires the insured limit to equal a set percentage (commonly 80, 90, or 100 percent) of the building's full replacement cost. If the limit falls short of that percentage at the time of loss, the carrier applies a coinsurance penalty and pays only a proportional share of even a partial loss, with the association absorbing the rest. An agreed value (also called agreed amount) endorsement removes that condition: the carrier and the association agree up front on the insured value, usually supported by a replacement-cost appraisal or a statement of values, and the coinsurance penalty is waived for the policy term. The Fannie Mae Selling Guide (section B7-3, Property and Flood Insurance) addresses this directly by requiring that the master property policy either contain no coinsurance clause or include an agreed-amount endorsement, so that an underinsurance penalty cannot erode a loss payment on a warrantable project.

This is the quiet companion to the replacement-cost requirement, and it is easy to miss because a policy can be written at replacement cost and still carry a coinsurance clause that punishes the association if the insured limit has drifted below the required percentage. Construction-cost inflation is exactly how that drift happens: a limit set three or four years ago against an old appraisal can quietly fall under an 80 or 90 percent coinsurance threshold, and the penalty then hits a partial loss the association assumed was fully covered. Confirm the master policy either has no coinsurance provision or carries an agreed value / agreed amount endorsement, and that the agreed figure is refreshed against a current replacement-cost appraisal at renewal. Without the waiver, an outdated limit turns an ordinary claim into a shortfall the association funds through a special assessment, and it can also surface as a warrantability question at a lender's insurance review.

The dedicated community-association specialty markets write property with an agreed value endorsement as a matter of course, so its absence usually signals an account placed in a generalist habitational package rather than a pricing decision. The endorsement itself carries little or no separate cost; the discipline it demands is keeping the agreed value tied to a current appraisal so the number the carrier agreed to still reflects real replacement cost.