Definition - What does Coinsurance Formula mean?
The coinsurance formula is the formula that is used to determine how much money a homeowner will receive from an insurance company in the event of a loss. Typically, if the homeowner has insurance coverage for at least 80% of the replacement value of the home, then he or she can receive full coverage in the event of a total loss. However, if the homeowner has less than 80% coverage, then the coinsurance formula will determine how much money he or she will receive from the insurance company.
Insuranceopedia explains Coinsurance Formula
The coinsurance formula is (actual coverage amount / 80% of the replacement value) x the amount of the loss. This number will reveal the dollar figure that the homeowner will receive for major or total losses on their homes. Ultimately, if a homeowner does not possess at least 80% coverage of the replacement value of his or her home, he or she could lose a significant amount of money if there is a total loss of the home. So, it can pay to have adequate insurance coverage for your home.