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📋 '''Coinsurance clause''' is a [[Definition:Policy provision | policy provision]] — most often found in [[Definition:Commercial property insurance | commercial property insurance]] — that requires the [[Definition:Policyholder | policyholder]] to maintain [[Definition:Coverage | coverage]] equal to a stated percentage of the property's actual or [[Definition:Replacement cost | replacement cost]] value. If the insured fails to carry adequate [[Definition:Insurance limit | limits]], the clause imposes a penalty at the time of a [[Definition:Claim | claim]], effectively making the policyholder bear a proportionate share of the [[Definition:Loss | loss]]. The standard threshold is typically 80%, though 90% and 100% coinsurance requirements also appear in the market.

⚙️ When a covered loss occurs, the [[Definition:Claims adjuster | adjuster]] applies a coinsurance formula: the amount of insurance actually carried is divided by the amount that should have been carried (the coinsurance percentage multiplied by the property's value at the time of loss), and the result is multiplied by the covered loss amount. If a building worth $1 million is insured for only $600,000 under an 80% coinsurance clause, the required coverage is $800,000. The insured has carried only 75% of that requirement, so the [[Definition:Insurance carrier | carrier]] pays just 75% of an otherwise covered loss, minus the applicable [[Definition:Deductible | deductible]]. This calculation can dramatically reduce a payout and leave the policyholder exposed to significant out-of-pocket costs.

💡 From an [[Definition:Underwriting | underwriting]] standpoint, the coinsurance clause discourages deliberate underinsurance, which would otherwise allow policyholders to pay low [[Definition:Premium | premiums]] relative to their true exposure while still collecting full claim payments on partial losses. For [[Definition:Insurance agent | agents]] and [[Definition:Insurance broker | brokers]], explaining the coinsurance clause — and ensuring that [[Definition:Statement of values | statements of values]] are current — is a critical part of the placement process. A client who inadvertently triggers a coinsurance penalty after a fire or storm often views the shortfall as a coverage failure, making accurate [[Definition:Property valuation | property valuation]] and regular policy reviews essential to maintaining trust and avoiding [[Definition:Errors and omissions insurance | errors-and-omissions]] exposure.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Co-insurance]]
* [[Definition:Replacement cost]]
* [[Definition:Agreed value]]
* [[Definition:Commercial property insurance]]
* [[Definition:Underinsurance]]
* [[Definition:Deductible]]
{{Div col end}}

Definition:Coinsurance clause - Revision history

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