How to Calculate Property Damage Coinsurance

Coninsurance is a clause found in homeowner's insurance policies. It specifies a percentage of the home's full value that must be insured and restricts the amount that an insurance company will pay out for a claim. Its purpose is to prevent people from underinsuring their home, in an attempt to keep insurance rates equitable for all consumers. What this means is that if the homeowner experiences a loss, the insurance company will pay for only a portion of the loss. This portion will be equal to the percentage of the home value that the homeowner has insured. To determine this amount, a series of calculations must be performed.

Difficulty:

Moderate

Instructions

1. Determine the amount of insurance required from the coninsurance policy.

2. Calculate to see if the requirement has been fulfilled. This is obtained by dividing the amount of insurance purchased by the value of the home.
   Example:
   $180,000 insurance / $250,000 home value = 72 percent covered
   If the coinsurance requirement was 80 percent, the provision has not been met, and penalties will apply.

3. Determine the amount of the loss.

4. Calculate the dollar amount of the loss that the insurance company will cover by taking the percentage of the house that is insured and multiplying it by the loss amount.
   Example:
   $100,000 loss x .72 coverage = $72,000 covered

5. Subtract the covered amount from the total loss amount to determine how much the insured will be liable to pay out of pocket for the loss.
   Example:
   $100,000 loss - $72,000 covered = $28,000 out of pocket to the insured

Tips & Warnings

• If the coninsurance clause of the contract is met, the insurance company will pay the entire amount of the loss. For instance, if the coninsurance amount was 80 percent and the homeowner had 80 percent of the home's value insured, the insurance company would view the clause as fulfilled and pay the claim.

• In case of a catastrophic loss, it is necessary to have full insurance coverage.

Resources

• Coinsurance