Coinsurance
Coverage · Cloudbreak team · Updated October 29, 2026 · 7 sources
Definition
Coinsurance is a condition in a property policy that requires the limit of insurance to be at least a set share of the property's value at the time of loss. If the limit falls short, the insurer pays only the part of each loss that the limit carried bears to the limit required, minus the deductible.
How it works
Coinsurance is how a property insurer makes sure owners buy limits that match what their buildings are worth. The policy names a percentage, and at the time of a loss the insurer compares the limit carried with that percentage of the property's value. If the limit is high enough, losses are paid in full up to the limit. If it is too low, every loss is paid in proportion, even a small partial loss.
On ISO's standard commercial property form (CP 00 10, October 2012 edition), the payment works out in four steps:1
- Step 1: value at the time of loss x coinsurance percentage = the limit required.1
- Step 2: limit carried / limit required.1
- Step 3: total loss, before the deductible, x the Step 2 figure.1
- Step 4: Step 3 minus the deductible. The insurer pays this or the limit, whichever is less.1
In one line: payment = (limit carried / (coinsurance % x value at time of loss)) x loss, minus deductible. When one limit covers two or more items, the test uses the total value of all of them.1
The value tested is the value at the time of the loss, not when the policy was bought, so a limit that was right at purchase can fall short as building costs rise. The value is measured on the policy's loss settlement basis, replacement cost or actual cash value.
Insurers use coinsurance to put every insured's values on a common footing for rating. IRMI notes that 100% coinsurance earns the largest rate credit, and that an insurer may allow as low as 80%.2
The word means something else in health insurance, where it is a split of costs above the deductible, such as 80% insurer and 20% insured.2
Example
The standard ISO commercial property form, CP 00 10, prints this example. A property is valued at $250,000 with 80% coinsurance, a $250 deductible and a $40,000 loss.1
| Limit $100,000 | Limit $200,000 | |
|---|---|---|
| Limit required ($250,000 x 80%) | $200,000 | $200,000 |
| Limit carried / limit required | 0.50 | 1.00 (no penalty) |
| Loss x ratio | $20,000 | $40,000 |
| Minus $250 deductible | $19,750 | $39,750 |
| Not paid | $20,250 | $250 |
- Insurer pays$19,750
- Not paid: coinsurance penalty and $250 deductible$20,250
- Total$40,000
Rising values cause the same shortfall. In an IRMI example, a 25,000 square foot building was estimated at $80 per square foot, or $2 million, in 2012 and kept at a $2 million limit. By 2016 its replacement cost was $2.4 million, so 90% coinsurance required $2,160,000. A $500,000 loss was multiplied by 0.926 ($2,000,000 / $2,160,000, rounded) to $463,000, and the insurer paid $458,000 after a $5,000 deductible.2
Applying CP 00 10's steps to a total loss of the same building gives $2,400,000 x 0.926, about $2,222,000, minus the $5,000 deductible, about $2,217,000. That is more than the $2,000,000 limit, so the payment is the limit.1,2
Agreed value and inflation guard
An agreed value option suspends coinsurance. Under CP 00 10's Agreed Value option, coinsurance does not apply to the property it covers for losses before the expiration date shown in the declarations; if that date is not extended, coinsurance is reinstated. The Inflation Guard option raises the limit each year by the percentage shown in the declarations, which helps the limit keep up with rising values.1
Where you'll see it
- Declarations: the coinsurance percentage is shown for each covered item. In CP 00 10 the condition itself sits in Section F, Additional Conditions.1
- Deductible endorsements: ISO's Windstorm or Hail Percentage Deductible (CP 03 21) takes its deductible after any coinsurance reduction. In its example, a $60,000 loss on a building with a $70,000 limit against an $80,000 requirement and a 1% deductible pays $51,800.3
- Lender requirements: Fannie Mae multifamily loans need a policy with no coinsurance clause, or one offset by an agreed amount provision of at least 100% of estimated insurable value.4
State rules
- Texas (TWIA): the Texas Windstorm Insurance Association's rating rules allow 80% or 100% coinsurance on most commercial rate tables (50% also for buildings on some tables, 80% only on others) and require 80% on dwelling buildings. TWIA may waive it when an apartment's insurance exceeds $100,000 on the building and $100,000 on business personal property ($200,000 each for commercial risks not otherwise listed), or when value exceeds its maximum limit.5
- Texas (TWIA): declarations list the percentage under "Coins (coinsurance) %". TWIA's claims page treats 80% or more as replacement cost coverage and below 80% as actual cash value.6
Questions
- What is an 80% coinsurance clause?
- It requires a limit of at least 80% of the property's value at the time of loss. In an example from Virginia's Bureau of Insurance, a building insured for $80,000 turns out to cost $120,000 to replace, so the required limit was $96,000. $80,000 / $96,000 is 83% (rounded), so the insurer pays $33,200 of a $40,000 loss.7
- Is coinsurance the same as a deductible?
- No. A deductible is a set amount taken off each loss. Coinsurance scales the payment down when the limit is too low for the property's value. Under CP 00 10, the coinsurance reduction is made first and the deductible is subtracted after.1
- Does a coinsurance penalty apply to a total loss?
- The steps still run, but CP 00 10 pays the result or the limit, whichever is less. When the reduced figure is above the limit, as on a total loss of a building insured below the requirement, the payment is the limit.1
Cloudbreak
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Sources
Written by the Cloudbreak team. Numbers, dates and rules cite the published sources below.
- 1. Insurance Services Office (copy hosted by Independent Insurance Agents of Texas): Building and Personal Property Coverage Form, CP 00 10 10 12
- 2. IRMI: Property Insurance: Coinsurance (November 16, 2018)
- 3. Insurance Services Office (copy hosted by Independent Insurance Agents of Texas): Windstorm or Hail Percentage Deductible, CP 03 21 10 12
- 4. Fannie Mae: Multifamily Selling and Servicing Guide, Part II Chapter 5: Property and Liability Insurance (effective October 26, 2026)
- 5. Texas Windstorm Insurance Association: TWIA Rating Rules (effective February 13, 2024)
- 6. Texas Windstorm Insurance Association: Factors that Affect the Claim Payment Amount
- 7. Virginia State Corporation Commission, Bureau of Insurance: Virginia Consumer's Guide for Commercial Insurance