What does "coinsurance" signify in property insurance?

Coinsurance in property insurance refers to a provision that requires the policyholder to maintain a certain percentage of insurance coverage relative to the property's value. This is a way to encourage policyholders to insure their property for an adequate amount, thereby preventing underinsurance.

When a property owner purchases insurance, they agree to insure their property to a value that is at least equal to the specified coinsurance percentage of its actual cash value or replacement cost. If the property is not insured to this level, the insurer may impose a penalty on any claims made. This could result in the policyholder receiving a reduced payout if a loss occurs, calculated based on the amount they are underinsured.

Understanding coinsurance is crucial for policyholders, as failing to comply with the coinsurance requirement can lead to significant financial loss in the event of a claim.