In property insurance, what does 'co-insurance' require?

Co-insurance in property insurance is a contractual obligation that requires the policyholder (the insured) to maintain a certain level of insurance coverage relative to the value of the property being insured. If the property is underinsured at the time of a loss, the insured must bear a portion of the financial loss.

The fundamental principle behind co-insurance is designed to encourage policyholders to insure their property to a value close to its actual worth. Typically, this is expressed as a percentage of the total value. If the insured fails to meet this required coverage percentage, they will not receive full compensation for a claim. Instead, the insurance payout will be reduced based on the ratio of the actually insured amount compared to the required amount. This means that if a total loss occurs, the insured could end up receiving significantly less than the true value of their loss if they did not adequately insure the property.

The other options do not accurately reflect the nature of co-insurance. Continuous premium payments (regardless of claims) does not pertain specifically to co-insurance terms, nor does the requirement for insurers to cover all losses without limit. Additionally, calculating premiums based on market value is a standard practice in underwriting but is separate from the concept of co-insurance itself.