What does a coinsurance policy provision require?

A coinsurance policy provision requires the insured to carry a specific percentage of the property's value as insurance coverage. This percentage is typically set around 80%, 90%, or 100%, depending on the specifics of the policy. If the insured fails to maintain this required coverage level, they may face a penalty in the event of a loss, which could lead to a reduced claim payout relative to the amount of coverage they actually purchased compared to the property's value.

This provision encourages property owners to insure their assets adequately and helps ensure that insurers do not face disproportionate losses from underinsurance. When the policyholder meets the coinsurance requirement, it safeguards both the insurer and the insured, fostering a fair relationship in terms of risk management in the insurance process.

Options that suggest full replacement cost coverage, lifetime coverage, or no coverage for specific perils do not accurately represent what a coinsurance provision entails, which focuses specifically on the relationship between the amount of insurance purchased and the actual value of the insured property.