Insurance Coinsurance Penalty Calculator

About this calculator

A coinsurance clause in property insurance requires you to insure a property up to a minimum percentage of its value — commonly 80, 90 or 100 percent — and penalizes you at claim time if you didn’t. That percentage is measured on whichever valuation basis (actual cash value or replacement cost) the policy specifies; this calculator applies it to the property value you enter. The payout formula is: (amount of insurance carried ÷ amount required) × loss, meaning a property insured well below the required percentage gets only a fraction of any loss reimbursed — the penalty comes from the carried-to-required ratio itself, even on an ordinary loss far below the policy limit.

This clause exists because insurers price premiums assuming policyholders insure close to full value, and without a coinsurance penalty, owners would have an incentive to underinsure and save on premiums while still expecting full claim payouts on smaller, more likely losses — the classic case is a $1,000,000 building insured for only $500,000 under an 80 percent coinsurance clause: the required coverage is $800,000, so a $100,000 claim only pays out (500,000 ÷ 800,000) × 100,000 = $62,500, leaving the owner to absorb the rest out of pocket (this calculator also caps the payout at the coverage carried and reduces it by any deductible; the example above omits both for clarity). Commercial property owners and their insurance agents run this calculation during every policy renewal specifically to make sure coverage keeps pace with rising replacement costs and avoids triggering the penalty.

Enter your property value, the coinsurance percentage required, your coverage amount, your deductible and your loss, and this calculator shows exactly what the insurer pays and how large the underinsurance penalty is.