Which statement about co-insurance is accurate in these policies?

Which statement about co-insurance is accurate in these policies?

• A. It refers to the premium amount only.
• B. It requires insuring property to a specified percentage of its value.
• C. It means the insurer covers all losses alone.
• D. It applies only to personal property.

Answer: (B)

Coinsurance is a clause that sets a minimum percentage of the property’s value that must be insured. The idea is to encourage proper valuation and sharing of risk, so you’re not underinsuring. If you insure to that specified percentage, you can recover losses up to the policy limits; if you’re underinsured, the payout is reduced proportionally to the ratio of what you carried to what was required. For example, if the policy requires 80% and the property value is 100,000 but you only insure 60,000, a 40,000 loss would be paid as (60,000 / 80,000) × 40,000 = 30,000. This shows how underinsuring lowers the payout. The other statements aren’t accurate: coinsurance isn’t about the premium, it doesn’t mean the insurer covers all losses, and the concept can apply to various types of property, not just personal property.

Coinsurance is a clause that sets a minimum percentage of the property’s value that must be insured. The idea is to encourage proper valuation and sharing of risk, so you’re not underinsuring. If you insure to that specified percentage, you can recover losses up to the policy limits; if you’re underinsured, the payout is reduced proportionally to the ratio of what you carried to what was required. For example, if the policy requires 80% and the property value is 100,000 but you only insure 60,000, a 40,000 loss would be paid as (60,000 / 80,000) × 40,000 = 30,000. This shows how underinsuring lowers the payout. The other statements aren’t accurate: coinsurance isn’t about the premium, it doesn’t mean the insurer covers all losses, and the concept can apply to various types of property, not just personal property.