What is a coinsurance penalty?
A. Coinsurance is a provision in your policy that states if you fail to carry at least 80% of the replacement cost of the property at the time of a loss you may receive a reduced loss settlement. For example, assume a home valued at $100,000 is insured for $60,000 and a $20,000 loss occurs. This loss would be settled for $15,000 since the insured carried only 75% of the amount of coverage required by the coinsurance clause ($60,000/$80,000 = 75%; 75% * $20,000 = $15,000). If the insured carried the $80,000 required by the coinsurance clause, the loss would be settled for $20,000.
