Coinsurance Penalty in Insurance

Understand the concept of coinsurance penalty, which is a penalty that an insurance company may impose on an insured for not maintaining insurance on a property.

What is Coinsurance Penalty?

When you buy insurance, you expect the insurance company to pay for damages if something happens. But what happens if the insurance company doesn't pay? You may be responsible for a coinsurance penalty.

A coinsurance penalty is a fee that is assessed when an insured person does not have enough insurance to cover a loss. The coinsurance penalty is usually a percentage of the total cost of the loss. For example, if an insured person has a $10,000 loss and only has insurance for $5,000, the coinsurance penalty would be 50%. 

The purpose of a coinsurance penalty is to make sure that insured persons have enough insurance to cover their losses. It is important to note that not all policies have a coinsurance penalty and those that do usually have a very low percentage.

How Can a Landlord Avoid the Coinsurance Penalty?

One way is to ensure the insurance policy has a coinsurance clause. This requires the insured to maintain coverage at a certain level to avoid penalties. Another way is to provide the property for more than the replacement value. Landlords can increase their premiums above the 80% threshold.

An alternative way is to purchase a policy with a higher limit. Landlords can also increase their deductible. This will lower their monthly premiums but require them to pay more out of pocket if the damage is done to their property. 

What Are the Exceptions to the Penalty?

One exception is landlords who live in the same home as their tenants. In this case, the landlord does not need to carry any additional coverage beyond the amount of coverage they have on their personal homeowners' policy. 

Another exception applies to landlords who rent out only a single unit within their home. These landlords are also exempt from the coinsurance penalty as long as they have at least $100,000 worth of coverage on their policy.

If the landlord's insurance policy has a per-occurrence limit lower than the replacement cost of the property, then the coinsurance penalty will not apply.

Moreover, suppose damage to the property is caused by an event specifically excluded from coverage under the landlord's policy (such as flood damage). In that case, the tenant will not be responsible for any damages.

Why You Shouldn't Ignore The Coinsurance Penalty for Your Landlord Insurance

There can be several consequences when you don't pay your landlord insurance coinsurance penalty. One is that you may no longer be eligible for future discounts on your premiums. Additionally, you may have to pay a higher premium since you're now considered a high-risk customer. 

Your insurance company may also void your policy. This means that if something happens to your property and you need to make a claim, your policy will not be valid, and you will not be able to receive any compensation. 


While coinsurance penalties may seem alarming, they can be suitable for landlords. They help ensure that landlords take the proper precautions to protect their tenants and property. Therefore It is important to understand these penalties and ensure that your insurance policy covers you for the total amount of damage that could be caused. Taking these steps can help protect you from financial losses in a disaster.

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