Coinsurance
Definition
A clause in commercial property policies that requires the policyholder to insure the property to a specified percentage of its value (typically 80%). If you insure below this threshold, the insurer will reduce claim payments proportionally. This penalty can be severe and unexpected.
When This Matters
Your building is worth $1,000,000 and your policy has an 80% coinsurance clause. You insure it for only $600,000. When you file a $100,000 claim, the insurer applies a coinsurance penalty: ($600,000 / $800,000) x $100,000 = $75,000. You receive $75,000 minus your deductible.
Related Terms
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