coinsurance

Case Study The coinsurance clause included in property insurance policies can result in an unpleasant surprise for a homeowner who files a substantial claim. Unlike coinsurance, or copay, in health insurance, in which the insured and insurer each agree to pay a predetermined portion of any claim, coinsurance applied to property insurance is the percentage of value a policyholder is required to insure. For example, a home with a value of $300,000 and an 80% coinsurance clause must be insured for at least $240,000. Coverage of less than the required amount will result in the insurance company paying a reduced amount for a claim, even if the claim is less than the amount of coverage. Suppose the homeowner in the above example carries $200,000 of coverage, $40,000 less than required by the coinsurance clause. A fire causing damage of $150,000 will result in an insurance reimbursement equal to the proportion of actual coverage compared to the required coverage times the amount of the claim. In this case, reimbursement is ( ^$200,000/_$240,000 ) × $150,000, or $125,000, less any deductible. Nearly all property insurance policies contain a coinsurance clause.