Coinsurance Penalty Calculator

How it is calculated

The tool applies the standard coinsurance formula to a partial loss. required insurance = property value × coinsurance % ÷ 100 and ratio = min(1, insured amount ÷ required insurance), so over-insuring earns no bonus. payout = loss × ratio − deductible: the penalty ratio is applied first, then the deductible. The payout never falls below zero and never exceeds the policy limit you entered. The penalty shown is what a fully insured policy would have paid (loss − deductible) minus the actual payout. Property value should be the replacement cost the clause refers to, not the market price, and amounts are in dollars. A loss larger than the property value, or a zero or negative value, limit, percentage or loss, gives no result. Your own policy may define the base or the deductible order differently.

Common mistakes

• Using the market value of the building instead of its replacement cost. The clause is based on the cost to rebuild, which can be much higher or lower than what the property would sell for.
• Subtracting the deductible before applying the ratio. Here the ratio is applied to the loss first and the deductible comes off afterwards, which gives a different payout.
• Assuming a small loss avoids the penalty. The ratio applies to every partial loss, however small, as long as the insured amount is below the required amount.
• Entering the coinsurance percentage as a fraction (0.8). The field is a percent, so 0.8 means 0.8 %, the required insurance becomes tiny and the penalty disappears.
• Expecting more than the policy limit. When the loss is large the payout is capped at the insured amount, and the figure labelled penalty then also contains the part of the loss above that limit.