Coinsurance Penalty Calculator (Underinsurance, 80% Rule)
Check whether a property claim will be cut by the coinsurance clause: the insurance you should carry, the reduced payout if you are underinsured, the penalty and what you pay yourself.
How it works
Required insurance = replacement cost × clause % · payout = (insurance carried ÷ insurance required) × loss − deductible (or × (loss − deductible) if the deductible comes first), capped at the policy limit (no penalty if carried ≥ required) · penalty = payout without the clause − actual payout
Many property policies include a coinsurance clause, usually 80%: you agree to insure the building for at least that share of its replacement cost. If you carry less, even a partial loss is paid only in proportion — “did ÷ should × loss − deductible” — which is the method of the ISO commercial property form; when a policy is silent, adjusters often apply the deductible first, which favors the insured. In Spain and much of Latin America the same idea is the regla proporcional for infraseguro, applied against the full value (the 100% option).
Worked example
A home with a 400,000 replacement cost under an 80% clause must be insured for 320,000. It is insured for 280,000, which is 87.50% of the requirement. A 100,000 loss therefore pays 0.875 × 100,000 − 1,000 = 86,500.00 instead of 99,000 — a 12,500 coinsurance penalty — and the owner pays 13,500 out of pocket.
Sources: Adjusters International — Coinsurance / insurance to value revisited · Wikipedia — Co-insurance
Frequently asked questions
What is the 80% coinsurance rule?
It requires you to carry insurance equal to at least 80% of the property’s replacement cost. Meet it and partial losses are paid in full (minus the deductible); fall short and payouts shrink in proportion.
How do I avoid a coinsurance penalty?
Update the insured amount whenever building costs rise, after renovations, and at every renewal. Ask about an agreed-value endorsement, which suspends the clause, or inflation guard.
Does the penalty apply to a total loss?
On a total loss you would normally receive the full policy limit, because the proportional payout exceeds the limit anyway. The penalty bites hardest on partial losses.
Is the deductible subtracted before or after the ratio?
The ISO standard form applies the ratio to the whole loss and then subtracts the deductible. Some wordings subtract the deductible first, and when a policy is silent that order is often used because it pays slightly more — pick the option that matches your policy.
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Educational estimate, not insurance advice. Policy wording, deductibles, depreciation schedules, surcharges and clauses differ by insurer and country — read your policy and ask your insurer or a licensed agent before deciding.