Most business owners have no idea this clause exists in their policy — until they file a claim and get far less than they expected. This tool was built to change that.
The Coinsurance Clause Explained
A coinsurance clause is a requirement buried in most commercial property insurance policies. It says you must insure your property for at least a certain percentage of its full replacement value — typically 80%, 90%, or 100%.
If your coverage falls below that threshold, the insurance company won't just pay less on total losses. They'll apply a penalty formula to every claim you file — even small partial losses.
The formula is:
The Coinsurance Formula
(Coverage You Carry ÷ Coverage Required) × Loss
= Raw Payout
Raw Payout − Deductible
= Final Check
Here's a real-world example of what that actually means:
Example: $200,000 Fire Claim
Building replacement cost
$1,000,000
Coinsurance requirement (80%)
$800,000 required
Coverage actually carried
$600,000
Coverage ratio (600k ÷ 800k)
75%
Insurer pays (75% × $200,000)
$150,000
You're out of pocket
$50,000
That $50,000 penalty isn't a deductible. It's a contractual punishment for being underinsured — and most policyholders never see it coming.
Frequently Asked Questions
Does my policy have a coinsurance clause?
Most commercial property policies do. Check your policy declarations page or the Property Coverage form. Look for terms like "Coinsurance," "Value Reporting," or "Agreed Value." If you see a percentage next to your building or business personal property coverage, that's your coinsurance requirement.
How do I know the correct replacement cost?
Replacement cost is what it would cost to rebuild or replace your property at today's construction prices — not the market value or what you paid for it. Insurance carriers use cost-estimating tools (like Marshall & Swift) to calculate this. You can also request a formal appraisal. Inflation has driven commercial construction costs up significantly in recent years, so policies that were adequate a few years ago may now be underinsured.
What if I disagree with the insurer's replacement cost estimate?
You can request a formal appraisal or work with your agent to negotiate. Some policies offer "Agreed Value" endorsements that waive the coinsurance clause entirely if both you and the insurer agree on the insured value upfront — this eliminates penalty risk.
Can I avoid the coinsurance penalty?
Yes — two ways. First, simply insure your property to the required percentage. Second, ask your agent about an Agreed Value endorsement, which suspends the coinsurance clause. Some carriers also offer Inflation Guard endorsements that automatically increase your coverage limit over time to keep pace with construction costs.
Is this calculator accurate?
This tool applies the standard coinsurance formula used by most commercial property policies. However, actual claim settlements can vary based on specific policy language, endorsements, sub-limits, and carrier interpretation. Use this calculator to understand your exposure and have an informed conversation with your agent — not as a substitute for professional insurance advice.
Why We Built This
The coinsurance clause is one of the most misunderstood provisions in commercial property insurance. Agents often don't explain it clearly, and policyholders usually don't discover it until they're sitting across from an adjuster after a loss.
We built this free tool to give business owners and property managers a clear, honest picture of their exposure — before a claim happens. No signup required. No data collected. Just the math.
If your results reveal a coverage gap, talk to a licensed commercial lines agent. The cost to close that gap is almost always far less than the penalty you'd face at claim time.