Coinsurance penalty calculator: what the clause actually costs you.
Carry less than the required percentage of replacement cost and the clause cuts every claim by the same ratio — not just a total loss. Put your numbers in and see what your policy pays versus what it should.
- The exact payout on your loss, ISO order of operations
- What the same claim pays with no penalty at all
- The penalty across loss sizes, not just a total loss
- The limit — or the SOV — that cures the gap
No email required to see your results. Nothing is transmitted until you ask.
Step one
Your policy and your loss
Five numbers off the declarations page and the claim you want to test. It all runs in your browser, with no account. Nothing leaves your browser until you click Email this result or ask for a review further down.
Prefilled with the standard ISO worked example, not a benchmark. and enter yours.
What the clause does to this loss
Before you dispute the number
Carrying $6.30M against a $9.00M requirement pays claims at 70.0% on the dollar — on this loss and every other one, total or partial.
Payout on this loss
$1,375,000
$2,000,000 × 70.0% ratio, minus $25,000 deductible
Coinsurance penalty
$600,000
$1,975,000 it would have paid, minus $1,375,000 it actually pays
Payout ratio
70.0%
$6.30M carried ÷ $9.00M required
Limit needed to cure it
$2,700,000
$9.00M required, minus $6.30M carried
What you retain because of the clause
$625,000
On a $2.00M loss, the policy pays $1,375,000. The rest — $625,000 — comes out of your pocket, and $600,000 of that is the coinsurance penalty alone, on top of the deductible.
It is not just for a total loss
70.0% on every claim
The ratio applies to whatever the loss is, not just a burn-to-the-ground claim. A small roof or water loss gets cut the same 70.0% as a total loss — see the table below.
Illustrative estimate only, based solely on the numbers you entered. This is not a quote, rate indication, coverage recommendation, or offer of insurance. Actual premiums, deductibles, and settlements depend on underwriting and policy wording.
Partial losses are penalized too
The same ratio at every loss size
Most claims are not total losses. The coinsurance ratio doesn't know the difference — it cuts a small claim exactly as hard as a large one.
| Loss | Pays with penalty | Pays without penalty | Penalty |
|---|---|---|---|
| 5% of RC$500K | $325K | $475K | $150K |
| 10% of RC$1.00M | $675K | $975K | $300K |
| 25% of RC$2.50M | $1.73M | $2.48M | $750K |
| 50% of RC$5.00M | $3.48M | $4.97M | $1.50M |
| 100% of RC$10.0M | $6.30M | $6.30M | $0 |
Deductible left out of this table so the ratio's slope is easy to read. Your deductible still applies on top, the way it does above.
Optional — on a blanket program: the margin clause
Agreed-value and blanket programs often drop coinsurance entirely. Plenty of owners read that as the exposure going away. It doesn't — a margin clause replaces it, and it works differently: instead of testing a ratio, it puts a hard ceiling on what one location can recover, set at its scheduled value times the margin.
Add a scheduled value above (and replacement cost today, in step one) to test the margin cap.
Optional — how stale is your valuation?
Both clauses above test the limit against replacement cost today, and most schedules of value only get updated at renewal or after an appraisal. If it's been a few years, this estimates what replacement cost has become since, so you can test the real gap instead of the one on file.
Add a last-known value and years since to estimate today's replacement cost.
Optional — what does curing it cost?
Raising the limit to the required amount removes the penalty for good. This prices that against the penalty on the single loss above, at a flat property rate — a ballpark for the conversation, not a quote.
Add a property rate to estimate the extra premium.
Keep this
Take it into the renewal or the claim.
Print it, or copy the link, which reopens this page with everything filled in. Or have the penalty, payout ratio and the limit needed to cure it emailed to you.
Methodology
Every formula on this page
- Required limit
- Replacement cost × coinsurance percentage.
- Payout ratio
- Limit carried ÷ required limit, capped at 1.
- Payout
- min(limit, max(0, loss × ratio − deductible)) — ISO CP 00 10 order: ratio first, then the deductible, then the limit.
- No-penalty payout
- min(limit, max(0, loss − deductible)) — what the same claim pays at a 100% ratio.
- Coinsurance penalty
- No-penalty payout minus actual payout.
- Owner retains
- Loss minus actual payout.
- Shortfall to cure
- Required limit minus limit carried, floored at zero.
- Margin clause cap
- Scheduled (SOV) value × margin percentage.
- SOV needed
- Replacement cost today ÷ margin percentage.
- Trended replacement cost
- Last known value × (1 + annual trend)^years since.
- Cost to cure
- (Shortfall ÷ 100) × property rate per $100 of TIV.
This prices what the clause does mechanically. It doesn't replace a public adjuster or your broker's read of the actual policy language, which varies by form and by carrier.
The clause that punishes a claim you already have
Owners think about insurance-to-value as a total-loss problem: burn the building down, find out the limit was short, argue with the adjuster. Coinsurance doesn't wait for that. It tests the ratio between what you carry and what the clause requires on every claim, and if the ratio comes up short, every payout comes up short with it — a roof, a pipe break, a kitchen fire, all cut by the same percentage a total loss would be.
The mechanics matter because the order of operations is not intuitive. The clause applies its ratio to the loss first, then the deductible comes out, then the whole thing is capped at the limit. Do the subtraction before the ratio — a mistake even some adjusters make on a first pass — and the number comes out wrong, usually in the carrier's favor.
What makes it worse is how it gets there. Replacement cost rises with construction costs, not with what the building last appraised for, and a schedule of values that hasn't been revisited in three or four years routinely falls behind. Roughly three-quarters of commercial properties are underinsured by 40% or more against today's replacement cost — nobody set out to underinsure the asset, the number just drifted.
Moving to an agreed-value endorsement or a blanket program doesn't make the question go away, either. Agreed value suspends coinsurance for the values on file, which is only as good as how current those values are. A blanket program usually trades coinsurance for a margin clause, which caps what one location can recover at its scheduled value rather than testing a ratio — a different mechanism, the same underlying exposure to a stale schedule of values. The optional sections in the calculator above price both.
Common questions
What is a coinsurance clause?
It's the requirement, on almost every commercial property policy, that you carry a limit equal to at least a set percentage of replacement cost — typically 80%, 90%, or 100%. Fall short and the clause doesn't just deny the gap: it cuts every covered claim by the same ratio, total loss or not. It exists so owners can't insure a $10 million building for $2 million and pay a bargain premium for full-limit protection.
How is a coinsurance penalty calculated?
Required limit = replacement cost × coinsurance percentage. Payout ratio = limit carried ÷ required limit, capped at 1. The policy pays: loss × ratio, minus the deductible, capped at the limit. On the standard ISO CP 00 10 worked example — $10 million replacement cost, 90% coinsurance, a $6.3 million limit, a $2 million loss, and a $25,000 deductible — the ratio is 0.7 and the payout is $1,375,000, not the $1,975,000 it would have paid at full value.
Does the coinsurance penalty apply to a partial loss?
Yes, and this is the part owners miss. The ratio applies to whatever the loss is, not just a total loss. A $200,000 roof claim gets cut to 70% just like a $10 million total loss would, because the clause tests your insurance-to-value at the moment of loss, not the size of the loss itself. Most claims are partial, which is exactly why this deserves more attention than it gets.
What is an agreed value endorsement, and does it remove coinsurance?
An agreed value endorsement suspends the coinsurance clause for the policy period, based on a replacement cost value the carrier and you agree to up front — usually from an appraisal or a stated-value worksheet. It removes the ratio test entirely, but only for the values agreed to. If replacement cost moves and the value on file doesn't get updated at the next renewal, the endorsement lapses back to coinsurance or the agreed value itself becomes the gap.
What's the difference between a margin clause and coinsurance on a blanket policy?
Coinsurance tests a ratio: carry less than required and every claim gets cut by that ratio, however large or small. A margin clause, common on blanket and agreed-value programs, doesn't test a ratio — it just puts a hard ceiling on what one scheduled location can recover, set at that location's scheduled value times the margin (often 105-125%). Owners who moved to a blanket program to escape coinsurance often haven't escaped the exposure, just changed its shape: the margin clause still bites if the schedule of values is stale.
How often should I update my property values to avoid the penalty?
At every renewal, at minimum, and sooner if there's been a major capital improvement or a jump in local construction costs. Replacement cost is a moving number — material and labor costs, not market value — and a schedule of values that hasn't been revisited in three or four years is a common way a well-run program ends up underinsured without anyone deciding to be.
Own apartments or a portfolio?
See the same coinsurance gap alongside NOI, value at your cap rate, DSCR, and the wind deductible sitting behind the premium.
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Master and schedule property programs for portfolios with $100M to $2B+ in total insured value, built with valuations that survive a coinsurance or margin-clause test at claim time.
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The calculator prices the clause. It can't tell you whether your schedule of values is current or whether an agreed-value endorsement would actually help — that takes the appraisal, the SOV, and what today's construction costs look like against it. Send the schedule over, or just the renewal date.
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