What is co-insurance in Canada?
4 minute read Published on Aug 17, 2026 by BrokerLink Communications
Co-insurance is a condition in many Canadian commercial insurance policies that decides how a claim is paid when the insured property value is too low. The policy sets a percentage, with common ones being 80%, 90% or 100%. That percentage is then applied to the current value of the property. If the amount of insurance carried falls below what the policy requires, a partial loss is paid proportionally. Read on to learn how co-insurance works in Canada for businesses and how underinsurance can reduce your next claim payout.
What does co-insurance mean in commercial property insurance?
Co-insurance tends to show up on a lot of commercial property policies, even for single-location businesses and it mainly affects partial losses. Under a co-insurance clause, the property has to be insured to a set percentage of its cash value or replacement cost to avoid penalties. The value used depends on the policy wording. Most insurance contracts use either:
-
Replacement cost value (RCV) or
-
Actual cash value (ACV), which reflects depreciation
If only part of a building is damaged and the insured value is too low, the claim gets reduced. If the insured amount meets the requirement, a partial loss is paid in full, subject to the deductible and the policy limit. But on a total loss, the policy limit usually does most of the limiting. So, co-insurance can still come into play, depending on the wording, but the proportional penalty is usually felt on partial claims.
How is co-insurance actually calculated on a property claim?
Generally, the math works the same way across most commercial property policies, even though wording can vary. Here's what you need to know:
1. Start with the current value
This is usually the replacement cost value, but some property is insured on an actual cash value basis.
2. Calculate the required amount of insurance
Current property value × co-insurance percentage.
3. Calculate the ratio
Amount of coverage carried ÷ amount of coverage required.
4. Apply the ratio to the covered loss
Ratio × covered loss. This gives the insurance company’s share of the loss before the deductible.
5. Apply the deductible and policy limit
The deductible is then subtracted, subject to the insurance policy limit. When the insured amount falls short of the co-insurance requirement, the claim payment is reduced in the same proportion. When the requirement is met, the loss is paid in full, minus the deductible and subject to policy limits. Here’s how that might look:
Example A: Underinsured |
Example B: Requirement met |
|
|---|---|---|
Building value (RCV) |
$1,000,000 |
$1,000,000 |
Co-insurance requirement |
90% |
90% |
Required amount |
$900,000 |
$900,000 |
Amount insured |
$600,000 |
$900,000 |
Co-insurance ratio |
600,000 ÷ 900,000 = 0.667 |
900,000 ÷ 900,000 = 1.00 |
Covered loss |
$300,000 |
$300,000 |
Insurer pays (pre-deductible) |
0.667 × $300,000 = $200,000 |
1.00 × $300,000 = $300,000 |
Deductible |
$5,000 |
$5,000 |
Claim payment |
$195,000 |
$295,000 |
How does co-insurance work for business interruption coverage?
Co-insurance also appears in business interruption coverage, but the value that’s being measured is different. Instead of a building value, business interruption co-insurance is based on an annual income figure, as defined in the insurance policy. Depending on the form, this may be described as:
Gross earnings or
Gross profit
The policy sets a co-insurance percentage for that annual figure, which is commonly set at 50%, 80% or 100%. If the insured amount is below what the policy requires, the business interruption claim can be reduced proportionally.
Business interruption coverage example
Take a look:
Annual Gross Earnings value: $5,000,000
Business interruption co-insurance requirement: 50%
Required amount: $2,500,000
Amount carried: $2,000,000
Ratio
$2,000,000 ÷ $2,500,000 = 0.80
Two-month outage loss: $600,000
Insurer share
0.80 × $600,000 = $480,000, before any waiting period, deductible or policy limit. Also, some insurance plans may offer alternatives to business interruption co-insurance, such as agreed value or a monthly limit of indemnity, which can reduce or remove the effect of co-insurance. But availability depends on the insurance provider and the policy form.
Can co-insurance penalties be avoided with a stated amount or agreed value?
Yes, in many cases. A stated amount or agreed value endorsement can suspend co-insurance during the policy term, as long as the insured amount stays at or above the agreed value. These endorsements are available on some commercial property policies. They work by setting a specific value that both the insurer and the policyholder agree represents the property’s value for the term of the policy, which is typically supported by documentation, like a statement of values or appraisal.
But if values aren’t maintained, co-insurance can be reinstated according to the policy terms. It’s important to note that it doesn’t always revert to a standard percentage like 90%. A licensed business insurance broker can help confirm that you carry the right amount of coverage to reduce the risk of co-insurance penalties.
Why do insurance values matter so much for co-insurance?
Because co-insurance is based entirely on value. If the value used in the policy is too low, the co-insurance calculation reduces the claim payment. Most co-insurance penalties come back to valuation issues rather than the size of the loss. Values often fall behind because of:
Construction cost inflation
Renovations or additions
Equipment upgrades
Code upgrade costs after a loss
Debris removal and other included costs
The claim calculation is based on rebuild cost, not what the property last sold for. That cost can rise even when its market value doesn’t. For business interruption coverage, values can also drift when revenue, staffing, seasonality or margins change. That’s why it’s essential to keep values current. An annual policy review can help you keep property values current and reduce the risk of co-insurance penalties.
How is property co-insurance different from a deductible or health coinsurance?
These terms are often mixed up, but they actually work differently. Let's take a closer look:
Commercial property and business interruption co-insurance
This is a value-based requirement. If the insured amount is too low, partial losses are reduced proportionally.
Deductible
A policy deductible is a fixed amount taken off a covered loss when you file a claim. It applies regardless of whether co-insurance requirements are met.
Health benefits co-insurance and co-pay
In health insurance benefits plans, “coinsurance” usually means a percentage you pay after any deductible and a co-pay is a flat amount paid per service. These concepts are unrelated to commercial property co-insurance.
Contact BrokerLink today
Co-insurance comes down to the value used in the policy, how much insurance is carried and the policy limit. If you’d like a second set of eyes, a BrokerLink broker can help you review how those pieces work together and whether your current values meet your policy’s requirements.
You can reach us by phone, email or in person at any one of our locations throughout Canada. And if you’re looking for a free business insurance quote, you can even try our free online quote tool, which can provide you with a competitive quote in minutes.