Property Coinsurance Calculator
Most commercial property policies carry a coinsurance clause. It requires you to insure a building or its contents for at least a set share of replacement cost, usually 80%, 90% or 100%. Carry less and the policy pays only part of any claim, small or large. This calculator shows whether your limit meets the clause, what penalty applies and what a claim would pay after the deductible.
How to Use This Calculator
- Enter the property value: what it would cost to rebuild or replace today, not the market value.
- Pick the coinsurance percentage from your policy: 80%, 90%, 100% or another figure.
- Enter the limit you carry, the amount of the covered loss and your deductible.
- Read the required limit, the coinsurance penalty and the estimated payout. If the requirement is not met, raise the limit or ask about agreed value.
Here's your calculation:
[(Insurance Carried ÷ Insurance Required) × Amount of Covered Loss] minus Deductible = Payout from Insurer
Insurance required is the property value times the coinsurance percentage. The payout never exceeds the limit carried or the loss.
Run Your Numbers
See how coinsurance affects an estimated property claim payout.
Enter property value, coinsurance, insurance carried, and covered loss to see an estimate.
- Required insurance
- Coinsurance penalty (uninsured share of the loss)
- Deductible applied
- Estimated payout from insurer
This is an estimate for illustration only, on a replacement cost basis. Actual settlement depends on your policy’s specific terms and any endorsements. Contact Falcon West to review your coverage: we’re brokers, not attorneys.
A Worked Example of the Coinsurance Penalty
Example: a building with a $500,000 replacement cost has an 80% coinsurance clause, so the required limit is $400,000. The owner carries $300,000. A $100,000 covered loss with a $1,000 deductible pays ($300,000 ÷ $400,000) × $100,000, minus $1,000, which is $74,000. Carrying $400,000 would have paid $99,000. The $25,000 gap is the coinsurance penalty.
The same ratio applies to every covered claim. An owner insured to 75% of the required limit collects 75% of a small water claim, less the deductible, just as on a total loss.
Understanding Coinsurance
How Coinsurance Works
When your policy includes a coinsurance clause, you agree to insure the property for at least that percentage of its replacement cost. Meet the requirement and covered losses are paid in full, up to your limit, less the deductible. Fall short and you become a coinsurer of your own property: the carrier pays only the share of each loss that your limit bears to the required limit.
Why Coinsurance Exists
Property premium is a rate times the limit. Coinsurance keeps that pricing fair: owners who insure close to full value pay for the protection they get, and owners who set a low limit to save premium share in their own losses.
Agreed Value: Suspending the Clause
Many carriers will suspend the coinsurance clause with an agreed value endorsement. You submit a signed statement of values, the carrier accepts the limit, and no coinsurance penalty applies for the policy term. The endorsement usually ends at expiration, so the statement of values is updated each year. Not every carrier or property qualifies, so it is worth asking at each renewal.
Business Income Coinsurance Works Differently
Business income coverage can carry its own coinsurance percentage, measured against 12 months of net income and continuing expenses rather than the building's value. Our business income calculator estimates that limit.
Watch: Property Coinsurance Explained
Frequently Asked Questions
What is an 80% coinsurance clause?
It requires you to carry a property limit of at least 80% of the property's replacement cost. On a $1,000,000 building, that is $800,000. If you carry less, the carrier pays only a share of any covered loss.
How is the coinsurance penalty calculated?
Divide the limit carried by the required limit (property value times the coinsurance percentage), multiply by the covered loss, then subtract the deductible. The penalty is the part of the loss the carrier does not pay because the limit was too low.
Does coinsurance apply to partial losses?
Yes. The ratio applies to every covered claim, not just a total loss. A building insured to 75% of the required limit collects 75% of a $20,000 water claim, less the deductible, the same share it would collect on a large fire.
Is coinsurance based on replacement cost or actual cash value?
It follows the valuation on your policy. Most commercial property is written on replacement cost, so the requirement is measured against the cost to rebuild today with materials of like kind and quality. On an actual cash value policy, depreciation is taken off first.
Can the coinsurance clause be removed?
Often, yes. An agreed value endorsement suspends the clause for the policy term once the carrier accepts your signed statement of values. Some carriers waive coinsurance on well valued accounts. Ask your broker which option your carrier offers.
Talk to us about business insurance or habitational insurance if your property limit needs a second look, or see all of our insurance calculators.
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