A coinsurance requirement is the minimum value of coverage the insurer requires under certain property policies. If the policyholder carries less than this amount, the claim is reduced because the insurer only pays the same proportion that was insured.
Why insurers include it
Coinsurance clauses discourage underinsurance, which can leave insurers handling large losses on a tiny premium base. The percentage is often tied to replacement cost, and the policy states both the required percentage and valuation basis.
Claims logic
Claim payment is commonly calculated as:
Adjusted payment = Loss amount × (Insurance carried ÷ Insurance required)
Example: with an 80% requirement on a $200,000 property, the required amount is $160,000. If a policyholder carries $120,000, only 75% of the covered loss is paid.
Underwriting and policy wording
For this reason, underwriting teams review valuation reports, construction updates, and coverage extensions. In renewal, a drop below requirement may trigger pricing, endorsement, or non-renewal actions depending on the insurer’s policy.