What does the "coinsurance" clause require in property insurance?

The coinsurance clause in property insurance is primarily designed to encourage policyholders to insure their property for a sufficient amount, generally a specified percentage of its total value. This clause typically requires the insured to carry a minimum amount of insurance, often expressed as a percentage of the property's value, such as 80%, 90%, or 100%. If the insured does not meet this minimum requirement, they may face a reduction in their claims payout, particularly in the event of a loss. This is intended to discourage underinsurance, which can lead to significant financial loss for both the insurer and the insured.

For instance, if a property valued at $100,000 has a coinsurance requirement of 80%, the insured should carry at least $80,000 in coverage. If they only carry $60,000, they could receive a reduced claim settlement, proportional to the amount of coverage they maintained compared to the required amount. This mechanism ensures that policyholders have enough insurance to cover their risks and encourages them to accurately assess and insure against these risks.

The other options provided do not accurately reflect the function of the coinsurance clause. The requirement to pay a deductible for every claim relates to cost-sharing between the insured and the insurer but is not the primary focus