Tools

Coinsurance penalty calculator

See what a commercial property policy pays when your limit falls short of the coinsurance requirement, how big the penalty is and the limit that avoids it.

Runs entirely in your browser: nothing you enter is sent or stored by this site. Results are estimates for planning, not a quote or advice.

How to use it

Run it for one building or one item of property at a time. The starting numbers are examples.

  1. Value of the property at the time of loss. Replacement cost or actual cash value, whichever your policy uses. A recent appraisal or your statement of values is the best source.
  2. Coinsurance percentage. 80%, 90% or 100%, or "Other" and type your own. It is on the declarations page and in the coverage form's coinsurance provision.
  3. Limit of insurance you carry for that building or item.
  4. Amount of the loss.
  5. Deductible.

The result updates as you type. Change the value to see what a year of construction-cost increases does.

The math

This follows the ISO commercial property method:

  1. Required limit = value × coinsurance %.
  2. If your limit is at least that, there is no penalty. The policy pays the loss minus the deductible, never more than the limit.
  3. If your limit is lower, the payment is loss × (limit ÷ required) − deductible, never more than the limit.

When you are short, the page also shows the payment without the clause, the payment if you had carried the required limit, and the smallest limit that avoids the penalty, rounded up to the next $1,000.

Hypothetical: a building worth $2,500,000 at the time of loss, 90% coinsurance, a $1,800,000 limit, a $300,000 loss and a $10,000 deductible. Required = $2,250,000. Your limit is 80% of that. Payment = $300,000 × 0.80 − $10,000 = $230,000. Without the clause the policy would have paid $290,000, so the penalty is $60,000, and you also carry the $10,000 deductible. A limit of $2,250,000 would have paid the full $290,000.

Assumptions and limits

  • Value at the time of loss. Coinsurance compares your limit with the value when the loss happens, not when you bought the policy. A year of rising rebuilding costs can create a penalty on a policy that was fine at inception.
  • Valuation basis. If the policy values property at actual cash value, depreciation lowers the value you test. Under replacement cost it does not. See replacement cost vs actual cash value for business property.
  • One item at a time. The clause usually applies separately to each building and to business personal property unless a blanket limit is written. The tool does not combine locations or blanket limits.
  • Optional coverages change the answer. An agreed value option suspends the clause for the term. See agreed value, blanket limits and margin clauses.
  • Other terms not modeled. Sublimits, extensions, a margin clause, ordinance or law and any other condition on the form are outside the tool.
  • Business income. Business income coverage has its own coinsurance basis. Use the business income (interruption) limit calculator.
  • Inputs matter. If you do not know the value, the result is a guess. Get an appraisal or a valuation from your insurer.

The tool shows the arithmetic and the cost of being short. Check the actual form, since manuscript and carrier-specific forms vary. Your broker can price the extra limit or an agreed value endorsement against the cost of a penalty. Read the coinsurance clause and how underinsurance is penalized and insurance to value: setting the right building limit.

Last reviewed October 10, 2026

Related guides

The coinsurance clause and how underinsurance is penalized How the coinsurance formula works, with worked penalty examples for buildings and business income, and four ways to avoid an underinsurance penalty. Insurance to value: setting the right building limit How to set a commercial building limit at replacement cost: what to include and exclude, valuation methods, annual updates, and why costs drift from your limit. Agreed value, blanket limits and margin clauses How agreed value suspends coinsurance, how a blanket limit spreads one limit across locations, and how a margin clause caps the payment at each building. Replacement cost vs actual cash value for business property How commercial property policies value a loss: actual cash value vs replacement cost, the holdback, the 180-day rule, roof endorsements and a worked example. Commercial property insurance: what it covers and what it doesn't How the standard ISO commercial property policy works: covered property, causes of loss, built-in extensions and limits, valuation, and the gaps to close.

Terms used here

Coinsurance A property policy condition requiring you to insure to a set percentage of value, or share the loss. (Health plans use the word for a cost share.) Insurance to value Carrying a property limit that matches the full value of what you insure, so a loss is paid in full and no coinsurance penalty applies. Agreed value A property policy option where insurer and insured agree on the covered value in advance, which suspends the coinsurance penalty for the agreed period. Replacement cost A valuation basis that pays the cost to repair or replace damaged property with like kind and quality, without deducting for depreciation. Actual cash value A property valuation basis that pays the cost to replace damaged property minus depreciation for age and wear, not the price of a brand-new item.

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