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.
Investopedia explains '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.