Avoid Underinsurance—and Unexpected Out-of-Pocket Costs
For businesses that insure trucks, trailers, or other high-value commercial equipment, understanding coinsurance is essential. It’s a commonly overlooked policy clause—until a claim arises and a business owner discovers they’re responsible for a larger share of the loss than anticipated.
This guide explains how coinsurance works and why it’s a crucial component of any commercial insurance strategy.
What Is Coinsurance?
Coinsurance is a clause included in many insurance policies that requires the policyholder to insure their asset for a minimum percentage of its actual value—typically 80%, 90%, or even 100%.
If the coverage amount falls below that percentage, the insurance company may reduce the claim payout proportionally. This clause is designed to promote fair coverage and discourage intentional underinsurance.
For example, insuring a $100,000 asset for only $40,000 might reduce premiums in the short term, but if a loss occurs, the policyholder should not expect to receive full reimbursement. Coinsurance ensures that both the insurer and the insured share risk responsibly.
Example: The Cost of Being Underinsured
Consider a truck valued at $100,000 with a policy that includes an 80% coinsurance requirement. This means the insured must carry at least $80,000 in coverage.
If the policyholder instead insures the truck for only $60,000 and a $20,000 loss occurs, and there’s a $1,000 deductible, the claim payout would be calculated as follows:
Step 1:
$60,000 (actual coverage) / $80,000 (required coverage) = 0.75 (75%)
Step 2:
$20,000 (loss) × 0.75 = $15,000
Step 3:
$15,000 – $1,000 (deductible) = $14,000 payout
In this case, the insurance company would pay $14,000, and the policyholder would be responsible for the remaining $6,000 out of pocket.
If the required $80,000 coverage had been in place, the insurer would have paid $19,000, with only the $1,000 deductible left to the policyholder.
Deductibles and Coinsurance: How They Interact
A deductible is the fixed amount the policyholder must pay before the insurer begins to cover losses. While separate from coinsurance, both affect the final payout and determine how much financial responsibility is retained by the insured versus transferred to the insurance provider.
Understanding both terms in tandem is important for estimating potential out-of-pocket costs.
Why This Matters for Truck and Trailer Owners
Trucks and trailers represent major capital investments and are essential to day-to-day business operations. In the event of a loss, being underinsured could result in significant unplanned expenses, delays, or even operational shutdowns.
Asset values are not static. Depreciation, upgrades, and market changes all influence the replacement cost of equipment. Without regular policy updates, a business could fall below the required coinsurance threshold without even realizing it.
Key Takeaways:
- Coinsurance requires you to insure your asset to a specific percentage of its actual value—often 80% or more.
- Failure to meet this requirement results in reduced claim payouts.
- Deductibles are a separate factor that also lowers the insurer’s contribution.
- Regular policy reviews are essential—especially after equipment upgrades or market shifts.
- Professional guidance can help ensure proper coverage and prevent costly surprises at claim time.
Final Thoughts on Coinsurance
Coinsurance isn’t just fine print—it’s a central part of protecting business assets. Understanding how it works can help companies avoid significant financial setbacks. Staying adequately insured, reviewing policy terms regularly, and consulting with an insurance professional are the best ways to ensure financial protection remains solid when it’s needed most.