Final answer:
Property policies often include a Waiver of Coinsurance for small losses as a method to reduce moral hazard. With a Waiver of Coinsurance, the policyholder is not required to pay a percentage of the loss for small losses, simplifying the claims process.
Step-by-step explanation:
Property policies often include a Waiver of Coinsurance for small losses as a method to reduce moral hazard. Coinsurance refers to when an insurance policyholder pays a percentage of a loss, and the insurance company pays the remaining cost. A Waiver of Coinsurance means that the policyholder is not required to pay a percentage of the loss for small losses, which makes it easier and more convenient for them to file claims.
For example, if a property policy has a 20% coinsurance clause and the loss is $1,000, the policyholder would typically have to pay $200 and the insurance company would pay $800. However, with a Waiver of Coinsurance, the policyholder would not have to pay anything for small losses, simplifying the claims process.