Coinsurance in real estate/property insurance is a policy clause that requires you to insure a property for at least a set percentage (commonly 80%, 90% or 100%) of its replacement cost. If you carry less than that required percentage and suffer a partial loss, the insurer can apply a coinsurance penalty, paying only a proportional share of the claim and leaving you to cover the shortfall.
In health insurance, “coinsurance” usually means the percentage of a bill you pay after the deductible. In property insurance, it’s not a coinsplit of every claim — it’s a requirement about how much insurance you must carry relative to replacement cost; failing to meet that requirement creates a penalty on claim payments.
“80% coinsurance” means your insurer expects you to carry insurance equal to at least 80% of the property’s replacement cost. If you don’t, a coinsurance penalty may reduce payments on partial losses.
If an adjuster pays less than you expected, the coinsurance clause is a common reason: the insurer applies the coinsurance formula to proportionally reduce the payout when limits fall short of the requirement.
Commercial policies more commonly include strict coinsurance percentages (80%–100%). Homeowner policies sometimes omit strict coinsurance or include milder forms — compare before you buy.
Lenders and underwriters may require proof you meet a coinsurance percentage (e.g., 80% or 90%) before closing; failure to document compliance can delay funding.
Coinsurance discourages underinsuring by tying full claim recovery to carrying adequate coverage. It spreads risk fairly among policyholders and keeps premiums aligned with exposure.
Coinsurance penalties typically affect partial losses. For a total loss, many policies will pay up to the policy limit (subject to loan/lender requirements and valuation), so the proportional penalty often matters most for partial claims.
Commonly included in commercial property, business owners policies, and condo master policies. Some homeowner and renters policies have relaxed or no coinsurance clauses; always check the declarations and policy language.
Expressed plainly: insurer payment = Loss × (Insurance Carried ÷ Insurance Required) − Deductible.
RC = $1,000,000. Required = 80% × $1,000,000 = $800,000. Carried = $600,000. Ratio = 600,000 ÷ 800,000 = 0.75. Insurer pays = $200,000 × 0.75 − deductible.
If deductible = $10,000: Insurer pays = $150,000 − $10,000 = $140,000. You receive $140,000; your out‑of‑pocket = $200,000 − $140,000 = $60,000 (including the deductible).
A landlord’s building replacement cost = $2,000,000, coinsurance = 90%, required insurance = $1,800,000, carried = $1,200,000. Partial loss = $300,000.
Ratio = 1,200,000 ÷ 1,800,000 = 0.6667. Insurer pays = $300,000 × 0.6667 − deductible. With a $25,000 deductible: payment ≈ $200,000 − $25,000 = $175,000. Landlord’s out‑of‑pocket ≈ $125,000.
Many standard homeowner (HO‑3) policies do not include strict coinsurance for the dwelling portion; instead they often pay up to policy limits on a replacement‑cost basis (subject to policy terms). Still, endorsements and some forms can include coinsurance—always read the declarations.
Commercial property policies frequently include coinsurance requirements (80%–100%). Lenders and businesses need these clauses to keep values insured closer to true replacement cost.
Condo associations' master policies commonly include coinsurance for the building component. If the master policy is underinsured, unit owners can face assessments or reduced recoveries that ultimately affect their personal exposure.
Landlord policies often require strict coinsurance. Owners of rental property should verify limits, consider agreed‑value or scheduled limits for high‑value components, and budget premiums accordingly.
Coinsurance percentages are applied to the replacement cost of the insured property. If your policy limit meets the required percentage of replacement cost, coinsurance won’t reduce your partial claim payment.
When a policy pays on an ACV basis, depreciation reduces the payment. If coinsurance also applies, you can be hit by both depreciation and a coinsurance reduction — compounding the shortfall.
Endorsements like guaranteed replacement cost or agreed value remove or blunt coinsurance risk by guaranteeing a payout up to actual replacement cost (or an agreed sum), often at higher premium cost.
Lenders commonly require borrowers to maintain insurance equal to a percentage of replacement cost (80%–100%) as a loan covenant. This protects the lender’s collateral in case of loss.
The insurer enforces coinsurance clauses when adjusting claims; the lender enforces insurance‑to‑value covenants by requiring evidence of coverage at closing and periodic proof thereafter. Failure to meet lender requirements can trigger escrow or force‑placed insurance.
Before closing, provide the lender with declarations showing required limits, or obtain endorsements/agreements that meet the lender’s specified coinsurance/insurance‑to‑value level.
Use a qualified appraiser, construction cost guides, or insurer cost estimator tools to estimate the building’s replacement cost (not land value or market value). Factor local labor/materials, code upgrades and recent renovations.
Insurance Required = Replacement Cost × Coinsurance Percentage.
Options include: licensed property appraisers, Xactimate‑style cost software, insurer site inspections, and insured‑provided contractor estimates. Keep documentation for underwriting and claims.
Request an updated valuation after renovations, major price changes in local construction costs, or routinely every 1–3 years depending on market and property type.
Review limits annually or after any renovation. Use inflation‑guard endorsements to automatically adjust limits between appraisals.
Inflation guard increases limits with construction cost inflation; guaranteed replacement cost covers full rebuild costs even if limits lag; agreed value sets a contract amount that avoids coinsurance calculations.
Consider scheduled property values for high‑value contents, business interruption and loss‑of‑rent coverage, and equipment breakdown limits to avoid unexpected gaps.
Weigh the premium increase for higher limits or endorsements against potentially large out‑of‑pocket losses from coinsurance reductions.
Responsibility often depends on who provided the valuation. If the owner supplied an incorrect estimate, the owner bears risk. If an agent/broker or insurer provided a valuation (or failed to advise), disputes can arise — documentation and policy language matter.
Start with adjuster review and request a written explanation of the coinsurance calculation. If unresolved, use policy appraisal clauses, mediation, or legal remedies. Keep detailed valuation records and communications.
Temporary binders or endorsements (agreed value, guaranteed replacement cost) can eliminate or limit coinsurance exposure and reduce dispute risk during underwriting or renovations.
Higher required coinsurance percentages themselves don’t directly change premium, but insurers may price policies differently if you insure to full replacement cost versus minimally meeting an 80% requirement. Removing coinsurance via agreed‑value or guaranteed replacement cost endorsements typically raises premium.
Underwriters balance the risk of underinsurance against premium revenue. They may require inspections, higher limits, or endorsements for higher‑risk properties to reduce residual risk.
Large commercial buyers can negotiate coinsurance percentages, obtain waivers, or buy agreed‑value terms in exchange for higher premium and detailed valuations.
Run the formula for multiple loss sizes to see when coinsurance materially affects recovery. Total losses often behave differently — check policy wording.
Include a simple coinsurance calculator (inputs: replacement cost, coinsurance%, policy limit, loss, deductible), downloadable spreadsheet templates, and links to trusted appraiser/estimator tools on your site or insurer resources.
It means you must insure at least 80% of the property’s replacement cost to get full payment on partial losses. Insuring less triggers a proportional reduction in payouts.
Often coinsurance is most relevant to partial losses. For total loss the policy limit and coverage terms usually govern payment; however, exact treatment depends on policy language and endorsements.
Yes — endorsements like agreed value or guaranteed replacement cost effectively eliminate coinsurance penalties, but they usually raise premiums and require accurate valuation documentation.
It depends on the policy. Coinsurance frequently applies to building limits and sometimes to business personal property; check the declarations and policy forms for scope.
Use the formula: Payment = Loss × (Insurance Carried ÷ Insurance Required) − Deductible. The remainder of the loss is your responsibility.
A lender can require you to maintain insurance meeting a coinsurance/insurance‑to‑value percentage as a loan condition. At escrow you must provide proof (declarations) showing compliant limits or obtain required endorsements; failure can delay closing or trigger force‑placed insurance.
Tax assessments and market value do not equal replacement cost; using them leads to underinsurance and coinsurance penalties.
Construction costs rise and renovations increase replacement cost — failing to update limits invites penalties.
Some homeowner policies have no strict coinsurance for dwelling coverage; others do. Don’t assume — read the declarations.
Include sample declarations pages and policy coinsurance clauses so readers can compare language; suggest that readers request copies from their carrier or broker.
Point readers to insurer guidance, state insurance departments, and professional appraiser standards for replacement‑cost estimation.
Provide downloadable spreadsheet templates for the coinsurance calculation and a checklist for appraisers/inspections (year built, square footage, construction type, upgrades, code costs).
Coinsurance is a policy clause that requires you to insure a property to a minimum percentage of its replacement cost; fail to do so and you may face a proportional reduction in claim payments for partial losses.
Ask your agent for the replacement‑cost basis used, whether coinsurance applies, and available endorsements; hire an appraiser or use insurer cost‑estimate tools for accurate valuations.
