This policy contains an 80% Coinsurance clause. This is a clause in an insurance policy requiring an insured to carry a certain percentage (usually 80, 90 or 100%) of insurance in relation to the value of the property insured. The insured shares in losses to the extent that he is underinsured at the time of loss. Under the terms of this clause, property must be insured in an amount equal to or exceeding 80% of its insurable value. Failure to do so will result in a penalty in the event of a loss. The manner in which the 80% co-insurance clause would operate is illustrated in the following hypothetical example Example: A) Owned Mobile Equipment is insured on a replacement cost basis for $60,000 B) Actual cost to replace the Owned Mobile Equipment is $100,000. If your total equipment has an actual replacement cost valued of $100,000 but is only insured for an amount of $60,000, you would be subject to an underreporting penalty in the event of a claim since its insured value is less than 80 % of its replacement value. Minimum amount of insurance required to satisfy the 80% co-insurance clause is $80,000. (80% of B) D) the amount of loss is $50,000 Application of co-insurance clause formula: Amount of insurance carried (times) Amount of loss (divided by) Amount of insured required = Recovery (A) 60,000. X (D) $50,000 / (C) $80,000 = $37,500 This example clearly illustrates the necessity of insurance to value as the insured would only receive $37,500 of the $50,000 loss from the insurance company. Note the amount of recovery never exceeds the amount of insurance carried. For this reason it is important to insure for 100% of the insurable value in order to have enough coverage in the event of a total loss