Total loss: the coinsurance formula can produce a number above the limit, but no payment exceeds the policy limit. Example: replacement cost $400,000, 80% requirement, limit $240,000. The formula gives $240,000 ÷ $320,000 × $400,000 = $300,000, so the insurer pays the $240,000 limit. The penalty matters mainly on partial losses, because a total loss usually reaches the limit first.

Meeting the requirement removes the penalty but does not raise the limit. An insured who carries 80% still bears any rebuilding cost above the limit after a total loss. That is why California's residential disclosure (Section 10102) warns against insuring for less than replacement cost, and why extended or guaranteed coverage exists.

Coinsurance is measured against value at the time of the loss, not when the policy was bought. Example: an owner insured for $320,000 when rebuilding cost $400,000, meeting 80%. Costs rise to $500,000, so required insurance is now $400,000 and the ratio drops to 80%. A $40,000 partial loss pays $32,000. Limits should be reviewed as costs rise.