Property-insurance condition that can reduce payment when too little insurance was carried.
Coinsurance usually refers to a policy condition requiring the insured to carry insurance equal to a stated percentage of the property’s value or face a reduced claim payment.
Here, P is payable amount, IC is insurance carried, IR is insurance required under the coinsurance clause, L is covered loss, and D is the deductible. The final payment still cannot exceed the applicable policy limit.
Coinsurance can reduce a payment even when the loss is otherwise covered. It is designed to discourage underinsurance by linking claim recovery to how fully the property was insured before the loss happened.
In Canadian property insurance, the coinsurance condition is most familiar in commercial property and some specialized property wordings. If the policy requires, for example, insurance equal to a specified percentage of value and the insured carries less than that amount, the claim payment may be reduced proportionally rather than paid in full.
This is different from the everyday way some people use “co-insurance” in health or benefits discussions. On this site, the term is being explained in its core property-insurance sense.
Assume a building has a declared value of CAD 1,250,000 and an 80% coinsurance requirement.
| Step | Amount | Why it matters |
|---|---|---|
| Building value | CAD 1,250,000 | Starting valuation base |
| Insurance required at 80% | CAD 1,000,000 | Minimum carried amount to avoid a penalty |
| Insurance actually carried | CAD 600,000 | Amount on the policy |
| Covered partial loss | CAD 250,000 | Loss before deductible |
| Coinsurance fraction | 600,000 / 1,000,000 = 60% | Insured carried only 60% of what was required |
| Payable before deductible | CAD 150,000 | 60% of the loss |
If there is also a deductible, it is applied after the coinsurance calculation under the wording. The result can be far lower than the insured expected even though the loss is otherwise covered and falls within the nominal limit.
| Term | What it tests | Why it is different |
|---|---|---|
| Deductible | First layer retained after a covered loss | Deductible does not test whether enough insurance was carried |
| Policy Limit | Maximum payable amount | Coinsurance can reduce payment before the limit is ever reached |
| Statement of Values | Declared values used for underwriting and placement | Inaccurate values can make coinsurance problems more likely |
Coinsurance is not the same as a deductible. A deductible retains the first part of a loss. Coinsurance tests whether enough insurance was carried in the first place.
It is also not just another word for policy limit. The limit caps payment, while coinsurance can reduce payment before the limit is ever reached.
Readers also sometimes assume coinsurance applies only to total losses. In practice, the penalty can affect partial losses as well.
Coinsurance wording is technical and highly dependent on valuation method, line of business, and the exact percentage stated in the policy. It should be read with the valuation clause and any agreed-value or reporting-form provisions.