Glossary

Coinsurance

A policy clause that reduces a claim payment when the insurance carried falls below a required percentage of the property's value, usually 80% for homes.

Also called: coinsurance clause, coinsurance penalty, 80% rule

Coinsurance in property insurance is a requirement to carry a minimum amount of coverage, expressed as a percentage of the property's value. If you carry less, the insurer pays only a proportional share of a partial loss. It is a different thing from health-insurance coinsurance, which is the share of a bill you pay after the deductible.

In a standard ISO HO-3, the version that matters is the 80% rule in the building loss settlement clause. The formula is: payment = (insurance carried ÷ insurance required) × loss, less the deductible. The policy pays the greater of that figure or the actual cash value of the damage. Say rebuilding costs $500,000, so 80% is $400,000, but you carry $300,000. The ratio is 0.75. On a $60,000 loss the policy pays $45,000, less a $2,000 deductible, or $43,000. The $15,000 penalty is yours, on top of the deductible.

The penalty applies to partial losses. A total loss is paid up to the limit, which is why a low limit hurts in both cases. The clause tests your limit against the actual rebuild cost at the time of the loss, whatever estimate set it. Keep limits current with insurance to value checks, see underinsurance for the wider problem, and try the coinsurance and insurance-to-value calculator with your own numbers.

Last reviewed October 10, 2026

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Related terms

Insurance to value The ratio of the coverage on a home to what it would cost to rebuild it today; 100% means the limit matches the rebuild cost. Underinsurance Carrying a coverage limit below what a loss would cost to repair or rebuild, which leaves the owner to pay the gap. Replacement cost What it would cost to repair or rebuild with materials of like kind and quality at today's prices, with no deduction for age or wear. Actual cash value What an insurer pays for damaged property: the cost to repair or replace it today, minus a deduction for age and wear, so less than a new-for-old payment. Dwelling coverage (Coverage A) The part of a homeowners policy that pays to repair or rebuild the house itself, including attached structures such as a garage, porch or deck. Replacement cost estimate A calculation of what it would cost to rebuild a home today, from its size, construction details and local labor and material prices.

Related guides

How much dwelling coverage do I need? Insure for the cost to rebuild at today's local prices, not your purchase price or mortgage. A six-step method, the 80% rule worked through and when to recheck. Inflation, rebuilding costs and underinsurance Rebuilding costs rose nearly 30% in five years. How that leaves limits short, what research says drives underinsurance, and how to keep your limit current. Underinsured after a disaster: your options Your dwelling limit is below the cost to rebuild. How the shortfall is calculated, where extra money can still come from, and what to do about the gap.

Related tools

Coinsurance and insurance-to-value calculator Test your dwelling limit against the 80% insurance-to-value rule and see how much a partial loss claim shrinks if you fall short.