Insurance glossary · How policies work
coinsurance.
Coinsurance is a property policy condition that expects you to insure close to the full value. Insure too little and the claim payment is cut in proportion.
How does a coinsurance penalty work?
The policy expects you to insure at least a set percentage of the property’s value, stated on the declarations page. If your limit is below that at the time of a loss, the insurer pays only the share of the loss that your limit bears to the required amount, minus the deductible. You absorb the rest.
Does coinsurance apply to small losses too?
Yes. That’s what surprises people. Even a small partial loss is cut in proportion if the property was underinsured, because the penalty is based on the limit compared with the value, not the size of the loss.
How is the property’s value measured for coinsurance?
On the same basis as the policy’s valuation, replacement cost or actual cash value, at the time of the loss. Rising construction costs can push you below the requirement without any change on your part.
How do I avoid a coinsurance penalty?
Insure to full value and update it as costs rise, or ask for an agreed value endorsement, which suspends coinsurance for the policy period once you file a statement of values the insurer accepts. Some policies offer inflation guard or blanket limits that help too.
Does coinsurance apply to business income coverage?
It can. Business income coverage often has its own coinsurance tied to a year of projected income and expenses. Alternatives like a monthly limit of indemnity or maximum period of indemnity remove it.
Is coinsurance in property insurance the same as in health insurance?
No. In health insurance, coinsurance is your percentage share of each covered bill. In property insurance, it’s a condition about insuring to value, and the penalty only applies if you’re underinsured.
Does coinsurance work differently by state?
The clause comes from the policy form, but a few states limit it by law. Texas voids most coinsurance on fire loss unless the insured opts in, and North Carolina requires the words “coinsurance contract” on the policy. The notes below cover Riza’s licensed states.
in the states where Riza is licensed.
Riza is a licensed insurance agency in New York, Colorado, Texas, Florida, Massachusetts, Arizona, Nevada, North Carolina, New Jersey and Georgia. Notes below cite the law they come from. Detailed write-ups cover Arizona, Nevada, Texas, North Carolina and New York. One-line notes for other licensed states appear with them when this term has one.
- ArizonaArizona has no statute or rule specifically regulating coinsurance in commercial property policies. Its standard fire policy has no coinsurance clause, so coinsurance comes from the forms insurers file.A.R.S. § 20-1503contractors in Arizona →
- NevadaNevada has no statute or rule specifically governing coinsurance in commercial property policies, so it comes from the filed policy forms.NRS ch. 691Acontractors in Nevada →
- TexasTexas voids clauses that make the insured a coinsurer for fire loss, with exceptions, including when the insured opts in for a lower rate and for wind and hail coverage by the commissioner’s order.Tex. Ins. Code § 2002.005contractors in Texas →
- North CarolinaNorth Carolina voids coinsurance clauses unless the words “coinsurance contract” are printed or stamped on the declarations page or the form, and insurers must give rates with and without the clause on request.N.C.G.S. § 58-3-15contractors in North Carolina →
- New YorkNew York has no statute specifically governing coinsurance clauses that we found. The pro rata clause in its standard fire policy divides a loss among insurers and isn’t a coinsurance clause.N.Y. Ins. Law § 3404contractors in New York →
by trade.
- General contractorsShop and yard buildings insured at old values are the most common source of coinsurance penalties.
- PlumbingInventory and building values that grew with the business need updated limits to stay above the requirement.
- HVACEquipment and stock values swing seasonally, which is where blanket or agreed value terms help.
where you’ll see it.
- Property declarationsA coinsurance percentage next to each building or business personal property limit.
- Statements of valuesThe schedule of values that supports an agreed value endorsement.
- Claim settlementsA coinsurance calculation reducing the payment when values were too low.
insure to value, every renewal.
Riza updates your building and contents values at each renewal, uses agreed value or blanket limits where they fit, and checks business income limits against a current worksheet so a claim isn’t cut short.
Get a quoterelated terms.
Coverage it touches: Commercial property