Property · Insurance Term
Coinsurance
Definition
Coinsurance is a property policy clause that requires you to insure a building for at least a set percentage of its value, commonly 80% or 90%. If your limit is below that, the insurer reduces partial loss payments in proportion to the shortfall.
In Plain English
The formula: divide the limit you carried by the limit you should have carried (value at the time of loss times the coinsurance percentage), multiply by the loss, then subtract the deductible. Payment cannot exceed the limit.
This penalty surprises owners who set limits from purchase price or old values. Accurate building valuation and insurance to value help avoid it. Agreed value coverage suspends coinsurance if you insure to the agreed amount.
Coinsurance can apply to building, contents and business income separately. Higher percentages may lower the rate, but increase the risk of a penalty if values are wrong. Being underinsured can also lead to underinsurance on a total loss.
Not sure how your policy handles this? Have us review it, or get a quote.
Example
Hypothetical: a building worth $1,000,000 at the time of loss has an 80% coinsurance clause, so the required limit is $800,000. The owner carried $600,000. A $200,000 loss is paid as ($600,000 ÷ $800,000) × $200,000 = $150,000, minus a $10,000 deductible, so $140,000.
Why It Matters for Texas Property Owners
After widespread Texas storms, demand for labor and materials can raise rebuilding costs, increasing the value used in the coinsurance calculation at the time of loss. Owners whose values were tight before the storm can face a penalty.
What to Watch For
- Check the coinsurance percentage on your declarations.
- Base limits on current rebuilding cost, not purchase price.
- Ask about agreed value to remove the penalty risk.
- Review business income coinsurance and worksheet requirements.
Common Questions
Does coinsurance mean I share every loss with the insurer?
No. In property insurance, it is a penalty that applies only if you carry too low a limit. If you meet the requirement, it does not reduce the claim.
How can I avoid a coinsurance penalty?
Insure to current rebuilding cost, update values regularly, and ask about agreed value coverage.
Last updated October 14, 2026 · Primesure editorial team · How We Write