What is a coinsurance clause?

A coinsurance clause is a type of insurance policy found within homeowner’s and renter’s insurance policies. Coinsurance is an obligation where the insured (the policyholder) agrees to maintain a minimum amount of insurance on their property to receive the full benefits of their insurance coverage. The coinsurance clause requires the insured to purchase insurance coverage for at least 80% of their property’s replacement cost up to a certain amount. For instance, if the replacement cost of a home is $200,000, the coinsurance clause would require the insured to purchase a minimum of $160,000 in coverage. If the insured fails to maintain that amount of coverage and their home is destroyed, the insurer will prorate their claim payment. For example, if the insured only has $80,000 in coverage, the insurer will only pay 40% of the claim. In California, insurance companies have the right to include this clause in their policies. They must notify the insured of the coinsurance requirements and any related penalties. That way, the insured is aware of their obligations and can make an informed decision when purchasing insurance products.

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What is a coinsurance clause?

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