What is coinsurance?

Coinsurance is an insurance term referring to when a customer is penalized for not maintaining a minimum amount of coverage on a building or business contents. For example, a Replacement Cost policy written with an 80% coinsurance requirement on a $1,000,000 building will require a customer to carry at least $800,000 of coverage. As long as a customer carries this amount, covered claims will be paid at 100%. Falling below this 80% requirement will result in a penalty. For 75% coverage, the insurance company would only be required to pay 75% of the claim. This only affects partial claims, which is 99% of all claims.