Did Over Should: Understanding the Coinsurance Formula

If you have property insurance such as homeowners, commercial property, or flood insurance, you have likely come across the term “did over should” when discussing claims and payouts. This refers to the coinsurance formula that is applied when determining claim payments.

Coinsurance is an important provision in property insurance policies. It encourages policyholders to insure their property to full value. If they do not, a coinsurance penalty can reduce claim payouts below the loss amount.

The “did over should” coinsurance formula determines if a penalty applies, and how much the claim payment will be reduced. Understanding what this formula means is key for both insurance agents and policyholders.

Below we will explain:

• What coinsurance is
• How the did over should formula works
• Examples of how it impacts claim payouts
• Tips for avoiding a coinsurance penalty

Knowing how the did over should coinsurance calculation works enables you to help clients pick appropriate coverage limits and avoid payment reductions.

What is Coinsurance?

First, let’s review what coinsurance is. Coinsurance is a clause found in many property insurance policies. It states that if you do not insure your property to a specified value, usually 80-100% of replacement cost, you will incur a financial penalty on claims.

Here’s how it works:

• Your policy has an 80% coinsurance clause
• This requires you to insure the property to at least 80% of replacement value
• If you only insure to 60% of value and have a loss, your claim payment will be reduced

The amount of the reduction is determined by the did over should coinsurance formula. This calculation compares the amount you insured for versus the amount you should have insured for based on the coinsurance percentage.

Coinsurance encourages adequate coverage limits. If you meet the coinsurance percentage, you receive full claim payments up to your policy limits. If you fail to meet it, the did over should formula reduces what you collect.

How Does the Did Over Should Formula Work?

Whenever a covered loss occurs, the adjuster will calculate the did over should ratio to determine if coinsurance applies. Here is the formula:

Did over Should Formula

Amount of Insurance Carried / Amount of Insurance Required x Loss Amount = Payment Amount

Or expressed mathematically:

Insurance Carried / Insurance Required x Loss = Payment

• Insurance Carried – The dollar amount of coverage you purchased
• Insurance Required – The value you needed to insure to based on the coinsurance percentage
• Loss Amount – The full dollar amount of your covered loss

This formula compares the amount you insured for to the amount you should have insured for. If the ratio is less than 1.0, a coinsurance penalty applies.

Here is an example of how did over should works:

• Home valued at $500,000
• 80% coinsurance clause
• Insured for $300,000 of coverage
• Suffered a loss of $100,000

Insurance Carried: $300,000
Insurance Required: $500,000 x 80% = $400,000
Loss Amount: $100,000

$300,000 / $400,000 = .75
.75 x $100,000 loss = $75,000 payment

Because the policyholder did not insure to the 80% requirement, the payout is reduced from the $100,000 loss to $75,000.

Meeting the did over should ratio of 1.0 or higher means full payment on covered losses, up to the policy limits. Falling below 1.0 triggers the coinsurance penalty.

Examples of Did Over Should Reducing Claim Payments

Let’s look at some additional examples to see how the did over should formula reduces claim payouts when coinsurance is not met:

Example 1

• Home valued at $800,000
• 75% coinsurance clause
• Insured for $500,000
• $60,000 fire loss

Insurance Carried: $500,000
Insurance Required: $800,000 x 75% = $600,000
Loss: $60,000

$500,000 / $600,000 = .83
.83 x $60,000 loss = $49,800 payment

Example 2

• Business property worth $1 million
• 90% coinsurance clause
• Insured for $700,000
• $200,000 theft loss

Insurance Carried: $700,000
Insurance Required: $1,000,000 x 90% = $900,000
Loss: $200,000

$700,000 / $900,000 = .78
.78 x $200,000 loss = $156,000 payment

Example 3

• Home valued at $400,000
• 100% coinsurance clause
• Insured for $300,000
• $150,000 fire loss

Insurance Carried: $300,000
Insurance Required: $400,000
Loss: $150,000

$300,000 / $400,000 = .75
.75 x $150,000 loss = $112,500 payment

In each case, the did over should ratio was less than 1.0, resulting in a reduced payout per the coinsurance clause. Understanding this formula enables you to anticipate potential penalties.

Tips for Avoiding Coinsurance Penalties

Here are some tips to share with clients to help them avoid costly coinsurance penalties:

• Insure to at least the percentage required, such as 80% or 90% of replacement value.

• If unsure of the home or building’s current value, schedule an appraisal.

• Avoid basing limits on the purchase price or mortgage balance.

• Adjust coverage every few years as property values rise.

• Remove exclusions for items like pools, sheds, etc. which add to rebuilding cost.

• If renovating or remodeling, increase dwelling coverage.

• Purchase an endorsement to waive the coinsurance penalty.

• Keep detailed records of upgrades to inform the insurer.

• Rebuild to code can further increase rebuilding expenses – make sure to account for it.

The did over should coinsurance calculation compares the amount you carry to the amount you should carry. Ensuring you insure to full value is imperative to avoiding claim payment reductions.

How Adjusters Calculate the Required Insurance Amount

When a loss occurs, the claims adjuster will calculate the amount of insurance required for the did over should formula. This is done by:

1. Determining the replacement cost value (RCV) of the damaged property at the time of loss.

2. Multiplying the RCV by the coinsurance percentage required (often 80% but sometimes 100%).

3. The result is the minimum amount the policyholder should have insured for to avoid a coinsurance penalty.

For example:

• Home’s estimated RCV is $600,000
• Policy has an 80% coinsurance clause
• $600,000 RCV x 80% = $480,000 required insurance amount

If the policyholder insured for less than $480,000 and has a loss, they will incur a coinsurance reduction based on did over should.

Adjusters use property valuation tools and expertise to calculate current reconstruction expenses, including materials, labor, demolition, code upgrades, and more. This often differs substantially from the property’s market value.

Order of Calculation with Deductible

One key point about did over should is whether the deductible applies before or after the coinsurance calculation.

If the deductible is subtracted first, the end result is a higher final payment for the policyholder. If it applies after, the payment will be slightly lower.

For example:

• $100,000 loss
• $500 deductible
• 75% did over should coinsurance ratio

Apply deductible first:
$100,000 loss – $500 deductible = $99,500
75% of $99,500 = $74,625 payment

Apply deductible after:
75% of $100,000 = $75,000
$75,000 – $500 deductible = $74,500 payment

Unless stated otherwise in the policy form, the generally accepted practice is to apply the deductible first before the did over should calculation. But be sure to check the specific policy language.

Did Over Should Coinsurance – The Bottom Line

The did over should coinsurance formula compares the amount of insurance purchased to the amount required by the policy. It determines if a penalty applies when coverage limits are inadequate.

Make sure clients understand this provision and the importance of insuring to full replacement value. Proper insurance-to-value avoids coinsurance penalties that drastically reduce claim payouts below actual losses.

Discuss this formula with your clients when selling and reviewing policies. Explain how the math works and share real examples. This helps set proper expectations should they ever need to file a major claim.