Legal Definitions - contribution clause

A contribution clause is a provision in an insurance policy that requires the policyholder to share in the cost of a claim if they are underinsured. This clause is also known as a coinsurance clause.

For example, let's say a homeowner has a property insurance policy with a 90% coinsurance clause. The policy has a limit of $200,000 for the home's replacement cost. If the homeowner only insures the home for $150,000, they are underinsured by 25%. If the home sustains $50,000 in damages, the homeowner would be responsible for paying 25% of the claim, or $12,500, out of pocket.

The contribution clause is designed to encourage policyholders to insure their property for its full value, so that they are not left with a large financial burden in the event of a claim.