Protect Your Property: How Coinsurance Penalties Can Cost You Big

Why This Matters for Property Owners

If you own commercial real estate, understanding your insurance policy is critical. One overlooked clause that can have huge financial consequences is the coinsurance penalty. Many property owners don’t realize how this clause works—until they get hit with a significant penalty on a claim.

At Panther Public Adjusting, we’ve seen too many property owners unknowingly leave themselves exposed to coinsurance penalties, costing them tens or even hundreds of thousands of dollars. Let’s break down what this means and how you can protect yourself.

What is the Coinsurance Penalty?

The coinsurance clause exists to ensure property owners carry adequate insurance coverage. Insurance companies want you to be properly insured for the full replacement value of your property. If you are underinsured, they penalize you by reducing the payout on your claim.

For example, if you own a $1 million property but only carry $500,000 in insurance, your claim payout could be severely reduced based on the percentage of underinsurance.

Many policyholders don’t understand this clause—even some adjusters and agents struggle to explain it! But knowing how it works can mean the difference between a full payout and a financial disaster.

Coinsurance Example: How Underinsurance Affects Your Claim

Here’s how the coinsurance penalty works:

1. If your policy requires 80% coinsurance. This means you must insure at least 80% of your property’s replacement cost.
2. Your building’s replacement cost is $1 million. That means you need at least $800,000 in coverage.
3. You only have $500,000 in insurance. This means you are underinsured by 37.5%.
4. A fire causes $300,000 in damages. Instead of receiving the full payout, the insurance company applies a 37.5% penalty, paying only $187,500 instead of $300,000.

How Much Will You Lose in a Coinsurance Penalty?

If you are underinsured, your insurance company applies a penalty to your claim payout. The more underinsured you are, the larger the penalty.

Coinsurance Penalty Calculation Example:

• Replacement Cost of Property: $1,000,000
• Required Insurance (80% Coinsurance): $800,000
• Actual Insurance Coverage: $500,000
• Coinsurance Ratio: $500,000 ÷ $800,000 = 62.5%
• Penalty Applied: 37.5% reduction in claim payout
• Loss Amount: $300,000
• Final Payout After Penalty: $187,500

Real-Life Example: A 70% Coinsurance Penalty

One recent case we handled involved a Florida business owner whose commercial building suffered major hurricane damage. The insurance company claimed they were underinsured by 70%, slashing their payout to only 30 cents on the dollar.

Fortunately, our team at Panther Public Adjusting proved that the valuation used by the insurance company was incorrect. Instead of being underinsured by 70%, we demonstrated it was closer to 15-20%. This reduced the penalty and significantly increased the final payout.

📞 Don’t let a coinsurance penalty ruin your claim. Call us at 833-726-8437 for a free policy review.

How to Avoid the Coinsurance Penalty

To protect your property and ensure full payouts, follow these steps:

1. Review your policy annually. Property values fluctuate. Make sure your coverage keeps up.
2. Conduct an independent valuation. Don’t rely solely on the insurance company’s numbers.
3. Ask about agreed value coverage. This removes the coinsurance clause and prevents penalties.
4. Document all upgrades and improvements. Keep records of renovations that may increase replacement costs.
5. Consult with a public adjuster. We can identify potential gaps before a disaster strikes.

📩 Email us at Claims@PantherPA.com to submit your policy for review.

Internal Links to Help You Understand Your Policy

• Learn more about What’s In My Home Insurance Policy?
• Discover what happens when you file a claim: What Happens to My Policy When I File a Claim?
• Find out how depreciation affects your payout: What is Depreciation? My Insurance Depreciated My Claim by 90%. Can They Do That?

Final Thoughts: Protect Your Property & Policy

Every year, property owners unknowingly lose thousands due to coinsurance penalties. Don’t wait until it’s too late—review your policy now to ensure you’re fully covered.

At Panther Public Adjusting, we help homeowners and business owners avoid costly mistakes and maximize their insurance payouts.

📞 Call us today at 833-726-8437 for a free consultation.

📩 Submit your policy for review at Claims@PantherPA.com and protect your property today!

Don’t let the fine print in your insurance policy cost you. Get the coverage you deserve with Panther Public Adjusting!