Coinsurance is a policy-sharing mechanism that can require the insured to bear part of a loss if the property was not insured to the percentage of value required by the policy.
Why It Matters
Coinsurance is one of the most misunderstood property-insurance provisions. Many insureds assume that if the loss is below the policy limit, the insurer should pay it in full after the deductible. Coinsurance can change that result when the building or contents were underinsured relative to value.
How It Works in Real U.S. Insurance Practice
In commercial property insurance, coinsurance clauses often require the insured to carry a stated percentage of the property’s value, such as 80 percent, 90 percent, or 100 percent. If the insured carries less than the required amount, the insurer may reduce the payment even on a partial loss. The idea is to encourage adequate values and prevent insureds from paying premium on only a fraction of the real exposure.
The term also appears in health insurance, where it usually means a percentage of covered medical costs shared between insurer and patient after the deductible. On this site, the most common property/casualty meaning is the default unless the page says otherwise.
Practical Example
If a building should have been insured for $800,000 to satisfy an 80 percent coinsurance requirement, but the insured bought only $400,000, a partial fire loss can be penalized even if the damage is much smaller than the policy limit.
Common Misunderstandings or Close Contrasts
- Coinsurance is not the same thing as a deductible.
- A high policy limit does not fix a coinsurance problem if the stated value is still too low.
- Property coinsurance and health-insurance coinsurance use the same word but operate differently.
- Agreed-value provisions or endorsements may suspend or change coinsurance in some situations.