How is the recovery amount calculated under a coinsurance clause?

The calculation of the recovery amount under a coinsurance clause is done by dividing the amount carried by the amount required. This ratio directly reflects how well the insured's coverage aligns with the property's value as established in the policy.

When an insurance policy includes a coinsurance clause, it typically stipulates that the insured must carry a certain percentage of the property's value to receive full compensation for a loss. If the amount of coverage (amount carried) is less than the required coverage based on the property's value (amount required), the insurer may only pay a proportionate amount of the loss, penalizing the insured for being underinsured.

In essence, the amount carried divided by the amount required provides the basis for determining how much of the loss will be covered under the terms of the policy. If the coverage is fully aligned with the property's value, the insured can expect to recover the loss in full, contingent upon meeting the coinsurance requirements.