Coinsurance clauses, explained | Kin insurance glossary (2024)

What is a coinsurance clause?

Homeowners insurance policies typically have a coinsurance clause that requires you to carry coverage worth a certain percentage of your home’s value. Failure to meet the requirement reduces your compensation after a loss.

What policies have coinsurance clauses?

Almost all property insurance policies – including homeowners insurance – includes a coinsurance clause. By requiring property owners to carry coverage at least equal to some percentage of a property’s total value, coinsurance clauses help to fairly distribute risk between policyholders and insurance companies.

The amount of coverage required by a coinsurance clause can vary by provider or policy, but typically ranges from 80% to 100%. If a property owner doesn't carry coverage equal to or greater than the amount required by their coinsurance clause, then their coinsurance has not been satisfied.

How does coinsurance work?

Coinsurance clauses are a feature of almost all home insurance policies to encourage policyholders to carry an appropriate amount of coverage. The clause does this by requiring you to insure your home for a percentage of your home’s actual cash value or its replacement cost. Basically, the coinsurance clause prevents you from underinsuring your home.

If you don’t insure your property at the specified percentage, typically at least 80% of its value, you can face a coinsurance penalty.

What is a coinsurance penalty?

A coinsurance penalty is the amount you may have to pay for a loss if you do not insure your home for the amount required in your policy’s coinsurance clause. Your insurer still covers your loss but only for a percentage of what you might expect.

An example of when coinsurance is satisfied

Let’s say your home’s replacement cost value is $200,000, and your coinsurance requirement is 80%. You need to insure your home for at least $160,000 to avoid the penalty.

Please note: Insuring your home for $160,000 satisfies the coinsurance clause, but it may leave you short when you need to replace your property. Even though your replacement cost is $200,000, the most your insurance provider might pay is $160,000 for a total loss. And that doesn’t take your deductible into consideration.

An example of when coinsurance isn’t satisfied

But now let’s say you want to save money and decide to insure your $200,000 home for only $100,000. When you file a claim, your insurer will realize your coverage falls short of the requirement and use a formula to determine your penalty. The penalty amount is deducted from your claim settlement.

The same is true if you choose to insure your home for its actual cash value and fail to secure sufficient coverage. But in that case, your insurance provider also deducts your property’s depreciation from your reimbursem*nt.

Factors that affect coinsurance amounts

Perhaps the trickiest part of the coinsurance clause is the valuation. Your home’s value can change due to inflation and home improvements, like:

  • Finishing your basem*nt.

  • Upgrading your electrical.

  • Replacing your windows.

  • Landscaping your yard.

A change in your home’s value can mean you fall short of the coinsurance clause requirements. On the other hand, depreciation may mean you’re paying too much for your insurance, so be sure to get your home appraised semi-regularly.

How can I avoid a coinsurance penalty?

A coinsurance penalty can be an unpleasant surprise when you’re trying to recover from a loss. However, you can avoid it. Here’s how:

  • Find out what your coinsurance clause is. You can usually find this information in the “conditions” section of your policy under the heading Loss Settlement.

  • Determine the value of your house on a regular basis. Get an appraisal once every three years.

  • Set your insurance limits appropriately. Take the information you’ve gathered and review it with an agent. They can help you fulfill the coinsurance clause requirement.

Staying on top of your policy is an important part of owning a home. Check out our blog for more tips on getting the most out of your home insurance.

Coinsurance clauses, explained | Kin insurance glossary (2024)


Coinsurance clauses, explained | Kin insurance glossary? ›

A coinsurance clause is a provision that requires you to carry coverage equal to 80% of your home's value.

How does a coinsurance clause work? ›

Coinsurance is a clause used in insurance contracts on property insurance policies such as buildings. The clause ensures policyholders insure their property to an appropriate value and that the insurer receives a fair premium for the risk.

What does 80% coinsurance clause mean? ›

Coinsurance kicks in after the policy deductible is satisfied. One of the most common coinsurance breakdowns is the 80/20 split: The insurer pays 80%, the insured 20%. Copays require the insured to pay a set dollar amount at the time of the service.

What does 100 coinsurance clause mean? ›

100% coinsurance: You're responsible for the entire bill. 0% coinsurance: You aren't responsible for any part of the bill — your insurance company will pay the entire claim.

How to explain coinsurance to a client? ›

The percentage of costs of a covered health care service you pay (20%, for example) after you've paid your deductible.

How does coinsurance work? ›

Coinsurance is the amount you pay for covered health care after you meet your deductible. This amount is a percentage of the total cost of care—for example, 20%—and your Blue Cross plan covers the rest.

What is the difference between a deductible clause and a coinsurance clause? ›

Usually, the co-pay amount is paid before the deductible clause kicks in. The coinsurance clause in the policy document specifies the limit to which your insurance company will pay if you have opted for another insurance policy that covers the same event.

Does 80 coinsurance mean I pay 80? ›

In an 80% / 20% coinsurance health plan, that means the insurer pays 80% of the allowed medical expense, and you pay 20% of the allowed medical expense.

Is it better to have 80% or 100% coinsurance? ›

Common coinsurance is 80%, 90%, or 100% of the value of the insured property. The higher the percentage is, the worse it is for you. It is important to note, as a way of preventing frustration and confusion at the time of loss, coverage through the NREIG program has no coinsurance.

What does 75% coinsurance mean? ›

Coinsurance is a percentage of a medical charge you pay, with the rest paid by your health insurance plan, which typically applies after your deductible has been met. For example, if you have 20% coinsurance, you pay 20% of each medical bill, and your health insurance will cover 80%.

What is an 80 20 coinsurance clause? ›

The “80/20” of 80/20 insurance policies refers to the amount of money to be paid by either the insurance company or the policyholder. Per the 80/20 split, your insurance company will pay 80% of your medical bills while you cover the other 20% out of pocket.

How to figure out coinsurance? ›

The simple formula for calculating the coinsurance penalty is: amount of insurance in place / Amount of insurance that should have been in place x the loss, less any deductible is the amount actually paid.

What is an example of a coinsurance? ›

For example, some health plans have an 80/20 coinsurance. This means your coinsurance is 20 percent and you pay 20 percent of the cost of your covered medical bills. Your health insurance plan will pay the other 80 percent.

What are the rules for coinsurance? ›

Coinsurance is a risk-sharing agreement between the insurer and the insured under a particular insurance policy. The insured agrees to cover a percentage of the losses after the deductible is satisfied, which means that the insured must pay the deductible before the insurer covers its part of the bill.

What does the coinsurance clause do? ›

The purpose of coinsurance is to have equity in ratings. If your insured meets the coinsurance requirement, the insured receives a rate discount. The coinsurance clause helps to ensure equity among all policyholders.

Do you pay coinsurance after out-of-pocket maximum? ›

Then, when you've met the deductible, you may be responsible for a percentage of covered costs (this is called coinsurance). These payments count toward your out-of-pocket maximum. When you reach that amount, the insurance plan pays 100% of covered expenses.

How does coinsurance work if you haven t met your deductible? ›

You pay the coinsurance plus any deductibles you owe. If you've paid your deductible: you pay 20% of $100, or $20. The insurance company pays the rest. If you haven't paid your deductible yet: you pay the full allowed amount, $100 (or the remaining balance until you have paid your yearly deductible, whichever is less).

What does 20% coinsurance mean? ›

A 20% coinsurance means your insurance company will pay for 80% of the total cost of the service, and you are responsible for paying the remaining 20%. Coinsurance can apply to office visits, special procedures, and medications.


Top Articles
Latest Posts
Article information

Author: Pres. Carey Rath

Last Updated:

Views: 5507

Rating: 4 / 5 (61 voted)

Reviews: 92% of readers found this page helpful

Author information

Name: Pres. Carey Rath

Birthday: 1997-03-06

Address: 14955 Ledner Trail, East Rodrickfort, NE 85127-8369

Phone: +18682428114917

Job: National Technology Representative

Hobby: Sand art, Drama, Web surfing, Cycling, Brazilian jiu-jitsu, Leather crafting, Creative writing

Introduction: My name is Pres. Carey Rath, I am a faithful, funny, vast, joyous, lively, brave, glamorous person who loves writing and wants to share my knowledge and understanding with you.