In property insurance, what does "coinsurance" entail?

Coinsurance in property insurance refers to a requirement for policyholders to insure their property for a specific percentage of its value, often 80%, 90%, or 100%. This aspect is built into many property insurance policies to ensure that the insured maintains a certain level of coverage that aligns with the actual value of the property. If the property is insured for less than the required coinsurance percentage, the policyholder may face a penalty when filing a claim, receiving only a proportionate amount based on coverage and actual value at the time of loss.

Understanding coinsurance is important because it encourages property owners to adequately insure their property, mitigating the risk insurance companies face when providing coverage. This requirement helps stabilize insurance premiums and maintains fair rates for all policyholders.