Coinsurance (Property Insurance)
Coinsurance is a property insurance provision requiring the insured to carry coverage equal to a specified percentage (usually 80%) of the property value or face a penalty at claim time.
Exam Tip
Coinsurance = penalty if underinsured. Formula: (Did ÷ Should) × Loss. 80% is typical. Must calculate!
What is Coinsurance?
Coinsurance is a clause in property insurance policies that requires policyholders to insure their property to at least a specified percentage of its value (typically 80%). If underinsured, the policyholder shares in the loss.
Coinsurance Formula
Payment = (Amount Carried ÷ Amount Required) × Loss − Deductible
Example Calculation
| Factor | Amount |
|---|---|
| Property Value | $500,000 |
| Coinsurance Requirement | 80% |
| Amount Required | $400,000 |
| Amount Carried | $300,000 |
| Loss Amount | $100,000 |
| Deductible | $1,000 |
Calculation:
- ($300,000 ÷ $400,000) × $100,000 = $75,000
- $75,000 − $1,000 = $74,000 payment
- Policyholder pays remaining $26,000
Common Coinsurance Percentages
| Coverage Type | Typical Requirement |
|---|---|
| Commercial Property | 80%, 90%, or 100% |
| Homeowners | 80% typical |
| Business Income | 50%, 60%, 80% |
Avoiding Coinsurance Penalties
| Strategy | Description |
|---|---|
| Insure to Value | Maintain coverage ≥ 80% of value |
| Agreed Value | Insurer agrees on value upfront |
| Inflation Guard | Automatic coverage increases |
| Regular Appraisals | Update property values |
Did You Meet the Requirement?
The coinsurance requirement only matters at the time of loss:
- If Amount Carried ÷ Amount Required ≥ 1, no penalty
- If the ratio is less than 1, you become a "co-insurer"
Exam Alert
Coinsurance in property insurance is DIFFERENT from health insurance coinsurance. In property, it's about carrying enough coverage. In health, it's about sharing costs after deductible.
Study This Term In
Related Terms
Actual Cash Value (ACV)
InsuranceActual Cash Value is a property valuation method that equals replacement cost minus depreciation, representing what property is worth today after accounting for wear and tear.
Replacement Cost
InsuranceReplacement cost is a property valuation method that pays the full cost to replace damaged property with new items of like kind and quality, without deducting for depreciation.
Deductible (Property & Casualty)
InsuranceA deductible is the amount the insured must pay out-of-pocket before insurance coverage begins, representing a form of self-insurance that reduces premiums.