Coinsurance Formula

DEFINITION of 'Coinsurance Formula'

The homeowners insurance formula that determines the amount of reimbursement that a homeowner will receive from a claim. The coinsurance formula becomes effective when a homeowner fails to keep coverage of at least 80% of the home's replacement value. Those in this situation who file a claim will only receive partial reimbursement according to the formula.

BREAKING DOWN 'Coinsurance Formula'

The coinsurance formula itself is relatively simple. Begin by dividing the actual amount of coverage on the house by the amount that should have been carried (80% of the replacement value). Then multiply this amount by the amount of the loss, and this will give you the amount of the reimbursement.

If this reimbursement value is greater then the specified limits of a single insurance company, a secondary coinsurer will supply the remaining funds.

RELATED TERMS
  1. Goal Seeking

    The process of finding the correct input when only the output ...
  2. Loss Settlement Amount

    A term used to denote the amount of a homeowner's insurance settlement. ...
  3. Admitted Insurance

    Insurance purchased from a company that is admitted (or licensed) ...
  4. Co-Insurance

    A co-sharing agreement between the insured and the insurer under ...
  5. Insurance

    A contract (policy) in which an individual or entity receives ...
  6. Co-pay

    A type of insurance policy where the insured pays a specified ...
Related Articles
  1. Home & Auto

    Fighting The High Costs Of Healthcare

    If your employer is cutting medical benefits, a health savings account may be right for you.
  2. Home & Auto

    Long-Term Care Insurance: Who Needs It?

    No one is immune to the possibility of one day needing long-term care - and the costs can deplete a life savings.
  3. Options & Futures

    Top Tips For Cheaper, Better Car Insurance

    Accident, theft, vandalism - make sure your coverage will protect you when you need it most.
  4. Retirement

    Shopping the New Retirement Products

    There are more options than ever for retirement portfolios these days. Choosing the right product comes down to your needs, time and management style.
  5. Your Practice

    Advisors: Win Over Millennials with Insurance

    Millennials don’t have the same values and goals as previous generations. Here are some tips on how advisors can adapt to their needs and wants.
  6. Home & Auto

    6 Reasons To Avoid Private Mortgage Insurance

    Homebuyers who put less than 20% down will likely be forced to secure private mortgage insurance. Here are six reasons to avoid it.
  7. Insurance

    Cashing In Your Life Insurance

    In tough economic times, tapping into a life insurance policy can provide a needed source of funds.
  8. Insurance

    Which Life Insurance is Right For You?

    Consumers have choices when it comes to life insurance. Knowing your future needs for cash or retirement can make the difference in what you select.
  9. Insurance

    6 Best Renters Insurance Providers

    Here are six companies that consistently offer excellent renters insurance at competitive rates.
  10. Insurance

    Pros and Cons of Indexed Universal Life Insurance

    Indexed universal life insurance has its pros and cons. Here's what you need to consider before purchasing a policy.
RELATED FAQS
  1. How does the 80% rule for home insurance work, and how do capital improvements affect ...

    The 80% rule refers to the fact that most insurance companies will not fully cover the cost of damage to a house due to the ... Read Full Answer >>
  2. What's the difference between Social Security Disability Insurance (SSDI) and Supplemental ...

    Disabled persons can receive payments through two programs: Social Security Disability Insurance and Supplemental Security ... Read Full Answer >>
  3. Does renters insurance cover personal injuries?

    Renters insurance provides two main forms of coverage – liability and contents insurance – and they are offered together ... Read Full Answer >>
  4. Does homeowners insurance cover vandalism?

    Vandalism is covered under an all-perils home insurance policy unless it is specifically excluded. Vandalism coverage applies ... Read Full Answer >>
  5. Does homeowners insurance cover tree damage?

    An all-perils homeowners insurance policy covers damage from trees in the event that it happens suddenly and by accident. ... Read Full Answer >>
  6. Does homeowners insurance cover roof replacement?

    A typical all-perils homeowners insurance policy covers the replacement of a roof, regardless of age, only if it is the result ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center