Coinsurance

Coinsurance is an insurance policy provision that requires you to insure your property for at least a certain percentage (usually 80%) of its replacement cost. If you don't meet this requirement, your claim payments may be reduced.

How Coinsurance Works: If your policy has an 80% coinsurance clause and your home's replacement cost is $400,000, you must carry at least $320,000 in dwelling coverage.

The Coinsurance Penalty: If you're underinsured, the formula is: (Coverage you have ÷ Coverage you should have) × Loss = Payment

Example:

• Home replacement cost: $400,000
• Required coverage (80%): $320,000
• Your coverage: $240,000
• Loss amount: $50,000
• Payment: ($240,000 ÷ $320,000) × $50,000 = $37,500

  You'd receive $37,500 instead of $50,000—a 25% penalty.

  Avoiding Coinsurance Penalties:

1. Know your home's true replacement cost 2. Insure for at least 80% (ideally 100%) 3. Update coverage after improvements 4. Consider guaranteed replacement cost coverage 5. Review limits annually

Why Insurers Use Coinsurance: It ensures policyholders carry adequate coverage and prevents people from underinsuring and only filing partial claims.