What does the coinsurance provision in a policy require from the insured?

The coinsurance provision in a property insurance policy requires the insured to carry an amount of insurance equal to a specified percentage of the property's value, typically 80%, 90%, or 100%. This provision is designed to encourage policyholders to insure their properties closer to their actual value, which ultimately helps minimize the risk of underinsurance.

If the insured fails to carry the required percentage of coverage, they may face a penalty at the time of a loss, resulting in a reduced claim payment. This is crucial in ensuring that both the insurer and the insured are adequately protected in the event of a loss, as it helps to share the risk more equitably. The concept promotes responsible insurance practices and helps maintain the integrity of the insurance pool.

Carrying an amount equal to market value, avoiding fire-resistant materials, or insuring additional properties do not align with the purpose of the coinsurance provision, which specifically focuses on maintaining coverage levels proportional to the value of the insured property.