Insure less than the rule asks, and every claim pays less.

The facts, in one place.

Six quotable sentences on the coinsurance rule.

1. Most homeowners policies require dwelling coverage of at least 80% of the cost to rebuild the house. Carry that much and a partial loss is paid in full less the deductible. Carry less and every claim is paid in proportion, not only a total loss.
2. The proportion is coverage carried over coverage required. A house that costs $400,000 to rebuild needs $320,000 of coverage under an 80 percent clause; a policy carrying $240,000 is three quarters of the way there, so a claim is paid at 75 cents on the dollar.
3. The textbook case: on that policy a $100,000 loss with a $1,000 deductible pays $74,000, and $25,000 of the loss falls on the owner beyond the deductible.
4. Example on this tool's defaults: $480,000 to rebuild, $350,000 of coverage, and a $100,000 loss with a $2,500 deductible. The policy requires $384,000, the claim is paid at 91.1%, and about $8,854 of the loss goes unpaid beyond the deductible.
5. Rebuild cost is not market value. The land is not rebuilt, and a house in a cheap neighborhood can cost more to rebuild than it would sell for. The coverage is measured against the builder's number, which the agent's replacement-cost estimator produces.
6. Extended replacement cost endorsements, an inflation guard, ordinance-or-law coverage, and actual-cash-value policies all change the arithmetic. The rule as stated here is the plain form, and the policy's own wording governs.

By coverage carried.

How the claim payment falls as coverage falls short.

How the rule works.

A replacement-cost homeowners policy conditions full recovery on the insured carrying a stated share of the dwelling's replacement cost, 80% in the standard form and 90 or 100 percent in some. The condition is measured at the time of loss, against the cost to rebuild then, not against the purchase price or the market value: land is not rebuilt, and the builder's number and the appraiser's number are different things. When the coverage carried is at least the required amount, a partial loss is paid at replacement cost less the deductible, up to the limit. When it is less, the insurer pays the larger of actual cash value and the proportion coverage carried bears to coverage required, applied to the loss; the tool computes the proportion, which is the case the clause is written for.

The penalty is a share of every claim, not a haircut reserved for a total loss, which is why a policy set at the purchase price years ago and never indexed pays less on a kitchen fire than the owner expects. Extended replacement cost endorsements add a margin above the limit, an inflation guard raises the limit each year, ordinance-or-law coverage pays the cost of building to current code, and an actual-cash-value policy deducts depreciation instead; each changes the arithmetic and the policy's own wording governs. The agent's replacement-cost estimator, not a square-foot rule of thumb, is the number the coverage should be set from.

Methodology.

1. Inputs. The rebuild cost, as square feet times a cost per foot or entered directly; the dwelling coverage (Coverage A); the policy's coinsurance requirement; a hypothetical loss; and the deductible.
2. Required coverage. The requirement times the rebuild cost. The shortfall is the required coverage less the coverage carried, never below zero.
3. The proportion. Coverage carried over coverage required, capped at one. The penalty share is one less the proportion.
4. The payment. The proportion times the loss, less the deductible, never below zero, and never above the coverage limit. The deductible borne is the deductible or the whole loss if smaller. The unpaid part is the loss less the payment and the deductible borne.
5. Validation. The textbook case (400,000 to rebuild, 240,000 carried, 80 percent: required 320,000, proportion 0.75, a 100,000 loss with a 1,000 deductible paying 74,000 with 25,000 unpaid); the fully insured and over-insured cases paying 99,000; a total loss capped at the limit; and a loss under the deductible paying nothing. A transcription error fails the build.
6. Not modeled. The actual-cash-value alternative in the clause, extended and guaranteed replacement cost, inflation guards, ordinance-or-law coverage, percentage deductibles, the contents, other structures, and additional living expense, and the premium. Hypothetical throughout. Educational, not advice.

Revision history.

The property and casualty tools' history.

September 7, 2026

First release of three property-and-casualty assumption tools: how much umbrella coverage (non-exempt net worth plus the present value of the reachable share of future income, less the underlying auto and home limits, rounded up to the next million), the coinsurance rule (required coverage as the policy's share of rebuild cost, the claim paid in proportion when coverage falls short, less the deductible and capped at the limit), and raise the deductible (premium saving against the extra out of pocket per claim, the break-even claim frequency, and the position over the years with none, one, and two claims).

Canonical address: https://consideratecapital.com/tools/home-coinsurance-rule