How does the coinsurance clause work in the typical HO policy?
The coinsurance clause in the standard homeowners policy only affects claim payments resulting from losses covered under either Coverage A – dwelling, or Coverage B – other insured structures. Losses are paid on a replacement cost basis as long as your policy limit is equal to at least 80% of the replacement cost of the dwelling. For example, assume you own a home with a replacement cost is $150,000 and the home suffers $20,000 in covered damages. As long as your Coverage A limit is $120,000 (i.e., 80% of $150,000) or more, the full $20,000 loss will be covered. When the limit on your homeowners policy is less than 80% of the replacement cost of the dwelling, a coinsurance clause then applies. In this case, the typical homeowners policy will pay the greater of either (1) the actual cash value of the damage, or (2) a percentage of the replacement cost of the damaged property where this percentage is equal to the amount of the policy limit divided by 80% of the replacement cost of the dw
