Agreed Amount
An agreed amount endorsement waives the co-insurance penalty by establishing a property value mutually agreed upon by the owner and insurer for the policy period.
The agreed amount endorsement is one of the most valuable provisions an apartment owner can add to a commercial property policy. By submitting a signed statement of values or a current appraisal to the insurer, the owner and insurer agree on the property's replacement cost for the policy period. In exchange, the insurer waives the co-insurance clause, eliminating the risk of a proportional penalty on claims.
This endorsement is particularly important in the current environment, where construction costs are volatile and can increase significantly within a single policy term. Without an agreed amount endorsement, a property owner who sets the coverage limit based on a replacement cost estimate at the beginning of the year could face a co-insurance penalty if construction costs rise before a claim occurs.
It is important to understand that the agreed amount endorsement waives the co-insurance penalty but does not increase the coverage limit. If the actual replacement cost exceeds the policy limit, the insurer's maximum payout is still capped at the policy limit. The endorsement simply ensures that the payout is not further reduced by a co-insurance calculation. Owners should still strive to insure as close to the true replacement cost as possible to ensure full recovery from a major loss.