Commercial Property Coinsurance: The Formula, the Penalty, and Three Worked Examples

Coinsurance does not test whether your limit is bigger than the loss. It tests how much insurance you were carrying before the loss happened — and a partial claim is where that difference shows up.

The surprise almost never arrives as “your limit was too small.” It arrives as a covered fire that did $60,000 of damage to a building insured for $600,000, and a settlement that is smaller than $60,000 minus the deductible — with nobody having done anything wrong.

That gap is a coinsurance requirement doing exactly what it says on the declarations page. Before any arithmetic, there are five inputs a reader needs in front of them, and they come from four different places in the policy:

• the current value of the property, measured on the valuation basis the policy uses;
• the required percentage stated on the declarations;
• the limit of insurance actually carried;
• the covered loss amount; and
• the deductible that applies to it.

One thing to clear away immediately, because it is the most common confusion in Texas commercial property. Coinsurance is not a percentage deductible. A percentage wind and hail deductible is a retained amount calculated on insured value — the subject of our deductible article — and it applies whether you insured the building well or badly. Coinsurance tests how much insurance you bought. Two different mechanisms, both expressed as percentages, both on the same page.

What follows is the formula, three worked examples with hypothetical numbers you can check, and a locator for finding these entries on your own policy.

What coinsurance means on a commercial property policy

A coinsurance provision asks you to carry a limit equal to at least a stated percentage of the property’s value. If you carry less than that, a covered partial loss can be reduced in proportion to the shortfall.

The words are worth separating, because the article’s whole difficulty is that four of them sound like the same thing:

Term	What it actually is
Property value	What the property is worth on the valuation basis the policy uses — not market value, not purchase price, not book value
Required amount	Property value × the coinsurance percentage
Carried limit	The limit of insurance shown on the declarations for that property
Covered loss	The amount of damage the policy covers, before any reduction
Deductible	The retained amount applied under the policy

The stated percentage may be 80, 90, 100, or something else. Nothing in Texas makes any one of them universal, and some policies are written without a coinsurance requirement at all. The Texas Department of Insurance is direct about why a general article cannot settle this for you: commercial insurance forms in Texas are not standardized, and approved forms differ between insurers. Your declarations, your causes-of-loss form, your valuation basis, and your endorsement schedule control the result. This page teaches the mechanism; it does not override your document.

The commercial property coinsurance formula

Required amount of insurance

Property value × coinsurance percentage = required amount of insurance

“Property value” is the load-bearing term. It means the value on the basis your policy settles losses on — replacement cost, actual cash value, or another form-specific treatment. Substituting what the building would sell for, or what you paid for it in 2014, is how an owner arrives at a number that is confidently wrong. If the policy settles on replacement cost and the market value is lower because of the location, the market value is irrelevant to this calculation.

Claim payment before the deductible and policy limit

(Carried limit ÷ required amount) × covered loss = preliminary figure

Then the applicable deductible and the limit of insurance are applied as the actual form directs.

This is a common teaching structure, not a universal rule — verify your form. The sequence in which the ratio, the deductible, and the limit are applied is written into the policy language, and Texas forms are not standardized. Where the carried limit meets or exceeds the required amount, the ratio is not applied at all; the deductible and the limit still are.

Three worked examples

Every number below is hypothetical, chosen because the arithmetic is checkable rather than because it is typical of anything. None of them describes a real account.

	Example 1 — compliant	Example 2 — underinsured	Example 3 — BPP, limit-capped
Property	Building	Building	Business personal property
Valuation basis (assumed)	Replacement cost	Replacement cost	Replacement cost
Current value	$1,000,000	$1,000,000	$400,000
Coinsurance requirement	80%	80%	80%
Required amount	$800,000	$800,000	$320,000
Carried limit	$800,000	$600,000	$300,000
Covered loss	$60,000	$60,000	$340,000
Ratio applied	none	0.75	0.9375
Preliminary figure	$60,000	$45,000	$318,750
Deductible	$10,000	$10,000	$5,000
After deductible	$50,000	$35,000	$313,750
Limit effect	none	none	capped at $300,000
Result	$50,000	$35,000	$300,000

Example 1 — the limit meets the requirement

The building is worth $1,000,000 and the requirement is 80%, so the required amount is $800,000. The carried limit is $800,000. No coinsurance reduction occurs.

Note what still happens: the $10,000 deductible still applies, and the limit still caps any loss larger than $800,000. Meeting a coinsurance requirement does not make a policy pay in full. It removes one specific reduction.

Example 2 — the underinsured building and a partial fire loss

Same building, same value, same requirement — but the carried limit is $600,000. Divided by the required $800,000, the ratio is 0.75.

The covered loss is $60,000, so the preliminary figure is $45,000. After the $10,000 deductible, the settlement is $35,000. The owner is $15,000 worse off than in Example 1, on an identical fire, holding a policy whose limit was ten times larger than the loss.

This is the point people find hardest to accept, so it is worth stating plainly: the limit being bigger than the loss is not the test. The test happened before the fire, when the limit was set against the value.

And to close the loop on the other percentage on the page — this reduction is not a deductible. A percentage wind and hail deductible would have produced a completely different number by a completely different route, and both provisions can sit on the same declarations at the same time.

Example 3 — business personal property, and a limit that caps the result

Coinsurance is not only a building provision. A separate percentage can be stated for business personal property, and contents values drift faster than buildings do.

Here the BPP is worth $400,000 against an 80% requirement, so $320,000 is required and $300,000 is carried. The ratio is 0.9375 — a near miss. On a $340,000 covered loss the preliminary figure is $318,750, and after a $5,000 deductible, $313,750.

The settlement is $300,000, because the limit of insurance caps it. The formula produced a number the policy cannot pay. Two separate constraints, both binding, and only one of them is coinsurance.

Do not read Example 3 as saying every property category shares one limit, one percentage, or one valuation basis. It is common for a building and its contents to differ on all three.

Why a partial loss reveals the problem first

On a total loss, underinsurance is obvious: the limit is the settlement, and the owner can see that the limit was too small. Nobody needs a formula to explain it.

A partial loss hides it. The reasoning that fails is “my limit is $600,000 and the fire was $60,000, so I am comfortably covered” — which is true about the limit and says nothing about the requirement. Four separate questions are involved, and an owner can pass three and fail one:

• Is the limit adequate for a large loss?
• Does the carried limit meet the coinsurance requirement for the value?
• What deductible applies to this cause of loss?
• Is the damaged property covered property at all under this form?

One caution. If you are in the middle of an actual loss, this article is not your answer. The adjuster and the policy govern a live claim, and the useful move is to raise the questions with them and with your agent rather than to run arithmetic from a web page.

Where to find the relevant terms

The five inputs live in different places, and on many policies they are split across more than one document. In roughly the order you will encounter them:

1. The declarations page — the limit of insurance for each property category, the premises and building numbers, and usually the coinsurance percentage.
2. The building and business personal property schedule — which limits attach to which location, where a multi-building schedule can hide a great deal.
3. The valuation entry — replacement cost, actual cash value, or another treatment, and it can differ between the building and the contents.
4. The coinsurance percentage entry — sometimes on the declarations, sometimes in the coverage form, sometimes modified by endorsement.
5. The causes-of-loss form — which determines whether the loss is covered before any of this matters. That is a separate decision with its own consequences, covered in Basic vs. Broad vs. Special form.
6. The endorsement schedule — where a coinsurance provision can be modified, suspended, or replaced.
7. The deductible schedule — which may list several deductibles applying to different causes.

If your property sits inside a business owner’s policy, the same questions apply. Packaging changes how the coverage is assembled, not whether an insurance-to-value provision can exist.

Agreed value, blanket limits, and other policy-specific alternatives

These come up the moment an owner understands the mechanism. Moon can look at both — they are available through the markets this agency places — but neither is a switch that gets flipped on request. Each has eligibility terms, each has duties attached, and each has to be right for the risk.

Agreed value arrangements can suspend or replace the coinsurance test for a stated period, generally in exchange for a signed statement of values and specific terms. What matters in practice is what the arrangement requires and when it expires — an agreed value that lapsed at the last renewal is not protecting anybody.

Blanket limits can allow one limit to apply across multiple buildings or categories, which changes how insurance-to-value is measured rather than removing the concept. Multi-location owners have more to gain and more to get wrong here; it is a conversation with a statement of values on the table, not a paragraph in an article.

Eligibility, reporting duties, statements of values, expiration, and the actual form terms all matter, and what any particular insurer will do depends on the risk in front of it. So the honest version is this: ask us to look at either one and we will, with a statement of values on the table. What nobody can tell you in advance is what a specific insurer will offer on a specific building.

A renewal checklist to reduce underinsurance risk

Coinsurance problems are almost always drift. The value moved and the limit did not.

• Refresh the building value on the policy’s valuation basis, not on an appraisal for another purpose.
• Refresh the business personal property value, and reconcile equipment and stock added or disposed of since the last renewal.
• Confirm the valuation basis and the coinsurance percentage — both, separately, for building and contents.
• Check separate schedules, locations, and limits rather than the total.
• Compare the renewal forms and endorsements, not only the premium. A provision can change between editions.
• Bring the current declarations and a current replacement estimate to the review.

When to ask for a review

Before a renewal, after a purchase, after a renovation or a significant equipment addition, after a tenant build-out, or whenever a statement of values is more than a year stale.

What a review can do is identify what your policy says, where the numbers disagree with the property, and what to ask the insurer. What it cannot do is promise that a coinsurance requirement will be removed, that a claim will pay a particular amount, or that a premium will fall. Anyone promising those things is describing a different business than insurance.

The full coverage picture — what a commercial property policy covers and how one is placed in Texas — is on our commercial property insurance page. This article is one provision on it, and it is the provision that costs owners money quietly.

Common questions

What is coinsurance in commercial property insurance?

It is a policy provision that asks you to carry a limit equal to at least a stated percentage of the property's value, measured on the valuation basis the policy uses. Carry less, and a covered partial loss can be paid in proportion to the shortfall. It is not the same thing as a deductible, and it is not health-insurance coinsurance.

How is a commercial property coinsurance penalty calculated?

The common teaching structure is: property value × coinsurance percentage = the required amount. Then carried limit ÷ required amount × covered loss gives a preliminary figure, after which the applicable deductible and the limit of insurance are applied as the actual form directs. The order and wording vary by form, so verify yours rather than assuming this sequence.

What do 80%, 90%, and 100% coinsurance requirements mean?

They are the percentage of the property's value the policy asks you to insure. At 80% on a property valued at $1,000,000 the required amount is $800,000. Nothing makes 80% standard — a policy can state 90%, 100%, or another figure entirely, and some are written without a coinsurance requirement at all. Read the entry on your own declarations.

Does coinsurance apply to a partial loss?

A partial loss is usually where it becomes visible. A total loss tends to be settled against the limit, so the shortfall shows up as the limit being too small. On a partial loss the proportion is applied to the loss itself, which is why an owner can be underinsured and never notice until a $60,000 fire pays less than $60,000 minus the deductible.

How does agreed value affect a coinsurance requirement?

Agreed value is one of several policy-specific arrangements that can suspend or replace the coinsurance test for a stated period, usually in exchange for a signed statement of values and specific terms. Moon can look at one, and at a blanket limit, through the markets it places. Neither is automatic — eligibility, expiration, and form wording all matter.

Can coinsurance apply to business personal property?

Yes. A coinsurance percentage can be stated separately for building and for business personal property, and the percentages need not match. Contents, stock, and equipment values move faster than a building's do, which is why a BPP coinsurance entry is the one most likely to be out of date at renewal.

Sources: TDI — Commercial property insurance; TDI — Commercial insurance; TDI — Commercial property form review checklist. Verified 24 August 2026.

General information about Texas filing rules, not legal advice and not a quote. Requirements change; confirm your own through the Texas DPS License Eligibility system before acting. Published 24 August 2026 · last reviewed 25 August 2026 .