About the Property Coinsurance Penalty Calculator
This coinsurance penalty calculator shows how a property claim is reduced when a building or its contents are insured for less than the coinsurance clause requires. Commercial property policies, and some homeowners policies, require you to carry a limit of at least 80% (sometimes 90% or 100%) of the property’s value. If you carry less, the insurer pays only the proportion of the loss that your limit bears to the required amount — even on a small partial loss.
It is useful for business owners reviewing a commercial property renewal, landlords insuring rental buildings, agents explaining the clause to clients, and homeowners whose replacement cost has risen with construction prices. Enter the property’s value at the time of loss, the coinsurance percentage, your limit, the loss and your deductible.
The calculation follows the standard “did ÷ should” formula used in most commercial property forms: multiply the loss by the limit you carried divided by the limit you should have carried, subtract the deductible, and pay no more than the limit. Value is measured on the same basis as the policy — replacement cost or actual cash value — at the time of the loss, not when the policy was bought.
With the default inputs, the insurance payout is $74,000.00. Change any value above to recalculate instantly.
How to use the property coinsurance penalty calculator
- 1Enter the property’s current replacement cost or actual cash value.
- 2Select the coinsurance percentage from your policy.
- 3Enter the limit of insurance shown on your declarations page.
- 4Enter the loss amount and your deductible.
- 5Review the payout, the penalty and how much more limit you need.
Formula and method
The required limit is the property value at the time of loss multiplied by the coinsurance percentage. If the limit you carry is at least that amount, the insurer pays the loss minus the deductible, up to the limit. If it is lower, the loss is first multiplied by the ratio of the limit carried to the required limit (“did ÷ should”), then the deductible is subtracted, and the payout cannot exceed the limit.
The coinsurance penalty shown is the difference between what a fully compliant policy with the same limit would pay and what you actually receive. Some forms subtract the deductible before applying the ratio, and agreed-value endorsements suspend the clause entirely — check your policy wording.
- Limit
- Limit of insurance shown on the declarations
- Value
- Value of the covered property at the time of loss
- Coinsurance%
- Required insurance-to-value percentage (80/90/100%)
- Loss
- Amount of the covered loss before deductible
Worked examples
$500k building insured for $300k, $100k loss
With an 80% clause the building should be insured for $400,000. Carrying $300,000 is 75% of that, so the insurer pays 75% of the $100,000 loss ($75,000) minus the $1,000 deductible: $74,000, a $25,000 penalty.
Same loss with an adequate $400k limit
At $400,000 the limit meets the 80% requirement, so the insurer pays the full $100,000 loss less the $1,000 deductible.
Large loss capped at the limit
The penalised amount would be $450,000 × 75% − $1,000 = $336,500, but the policy never pays more than its $300,000 limit, so you bear $150,000.
Frequently asked questions
What is the 80% coinsurance rule?+
It is a policy condition requiring you to insure property for at least 80% of its value. If you insure for less, a claim is paid in proportion to how much you carried compared with how much you should have carried, minus the deductible.
How do I avoid a coinsurance penalty?+
Keep your limit at or above the required percentage of current replacement cost, update valuations regularly, add an inflation guard, or ask for an agreed value endorsement, which suspends the coinsurance clause for the policy period.
Does coinsurance apply to total losses?+
The ratio is applied to any loss, but with a total loss your payout is usually limited by the policy limit anyway. The penalty hurts most on partial losses, where an underinsured owner expects full payment and receives only a fraction.
Is property coinsurance the same as health insurance coinsurance?+
No. In health insurance, coinsurance is your percentage share of costs after the deductible. In property insurance, the coinsurance clause is an insurance-to-value requirement that penalises underinsurance.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.