What is the coinsurance formula used on the P&C exam?

The standard coinsurance formula is: Payout = (Insurance Carried ÷ Required Insurance) × Loss Amount − Deductible. The payout cannot exceed the insurance carried. Required Insurance = Property Value × Coinsurance Percentage (e.g., 80%).

When does the coinsurance penalty NOT apply?

The coinsurance penalty only applies to partial losses. If the loss equals or exceeds the amount of insurance carried, the insurer pays the full policy limit regardless of the coinsurance ratio. The penalty also does not apply when the insured carries insurance equal to or greater than the required coinsurance amount.

What is an agreed-value clause and how does it affect coinsurance?

An agreed-value clause suspends the coinsurance requirement entirely. The insurer and insured agree on the property value at policy inception, and the insurer agrees to pay up to that amount without applying the coinsurance formula. This eliminates the risk of underinsurance penalty.

What coinsurance percentage is most commonly tested on P&C exams?

The 80% coinsurance clause is the most commonly tested on state P&C licensing exams, particularly for commercial property coverage. Some policies use 90% or 100% coinsurance clauses — the formula is identical, only the required amount changes.

Insurance P&C

Coinsurance Calculator

The coinsurance formula appears on nearly every state P&C exam. Enter your scenario below and get the exact payout, penalty, and a step-by-step breakdown you can memorize for exam day.

Coinsurance Formula

Payout = (Insurance Carried ÷ Required Insurance) × Loss Amount

Where Required Insurance = Property Value × Coinsurance %

Property Value *

Coinsurance Requirement *

Insurance Carried *

Loss Amount *

Deductible (optional)

What is the Coinsurance Clause?

A coinsurance clause requires a property owner to carry insurance equal to a minimum percentage (usually 80%) of the property's replacement value. If the insured carries less than the required amount, they become a “co-insurer” and must share in any partial loss.

Key rule: The penalty only applies to partial losses. If the loss equals or exceeds the insurance carried, the insurer pays up to the policy limit regardless of the coinsurance ratio.

Payout = (Insurance Carried ÷ Required Insurance) × Loss — Deductible

Cap: payout cannot exceed the insurance carried.

Common Exam Scenarios

A building worth $500,000 has an 80% coinsurance clause. The owner carries $300,000 of insurance and suffers a $200,000 loss. What does the insurer pay?

Required: $400,000. Ratio: 300k ÷ 400k = 75%. Payout: 75% × $200,000 = $150,000. Owner absorbs the remaining $50,000.

Same building, but owner carries $400,000. Same $200,000 loss. What does the insurer pay?

Ratio is exactly 100%. Payout = 100% × $200,000 = $200,000. Full loss covered — coinsurance requirement met.

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