Margin Clause in Property Insurance: How It Can Limit a Commercial Property Claim

Mar 14, 2025

A commercial property can have a large blanket insurance limit and still have a limit on how much can be paid for one building.

A margin clause can set that limit as a percentage of the value reported for the building.

If the reported value is lower than the building’s replacement cost today, the limit may not be enough to cover the loss.

A margin clause is not a percentage taken off every claim. It can set a maximum amount paid for one location.

How does a margin clause work?

The basic calculation is simple.

Assume:

Reported value: CAD 40 million
Margin clause: 110%
Replacement cost: CAD 60 million

The location limit would be:

CAD 40 million × 110% = CAD 44 million

The building costs CAD 60 million to rebuild, but the margin clause produces a CAD 44 million limit.

The actual amount paid depends on the policy and other rules. These can include deductibles, co-insurance, exclusions and other limits.

The key point is simple:

The 110% is applied to the value reported for the building.

What if you have a CAD 200 million blanket limit?

This is where margin clauses can be easy to miss.

Suppose your portfolio has a CAD 200 million blanket limit.

One building has:

Reported value: CAD 40 million
Margin clause: 110%
Location limit: CAD 44 million

If that building costs CAD 60 million to rebuild, the CAD 200 million blanket limit does not necessarily mean the full CAD 60 million is available for that building.

If the building had been reported at CAD 60 million, the same 110% margin would produce a CAD 66 million location limit.

The issue is not just the size of the blanket limit. The value reported for each building matters too.

Margin clause vs. co-insurance

They are not the same.

Margin clause: Can set a maximum amount paid for a building based on its reported value.

Co-insurance: Can reduce the amount paid when the insurance carried is below the amount required by the policy.

A policy can have both. Both can affect the same loss, depending on the policy wording.

Read more about co-insurance in property insurance.

Why does the reported value matter?

This is the part to pay attention to.

A building’s value may come from an old valuation or a value that has simply been increased by a set percentage each year.

But construction costs do not always rise at the same rate as general inflation.

If the reported value falls behind the building’s replacement cost, the margin clause can leave you with less protection than you expected.

A current replacement cost valuation can provide a current value based on the building’s characteristics and current construction costs.

It does not change the policy wording or guarantee a claim payment.

It helps address one part of the problem: the value being reported for the building.

What should you check before renewal?

Ask:

What is the margin clause percentage?
What value is reported for each building?
When was that value last reviewed?
How was the value determined?
Does the policy also have a co-insurance requirement?

If the values are old or simply being carried forward, a current replacement cost valuation may be worth considering.

The blanket limit gets the attention. The value behind the margin clause deserves it too.

This article is for general informational purposes only. Policy wording varies and determines coverage and claim payments.

Know your property’s true value. Avoid costly mistakes.

Guessing your property’s replacement cost is a gamble you can’t afford. Under-insure, and you’re exposed. Over-insure, and you’re throwing money away. There’s no excuse for getting it wrong - Remit this burden to us today.