Question

What is the purpose of the coinsurance clause found in property insurance policies?

1) Encourage higher standards of care by requiring the insured to pay a portion of every loss
2) Ensure that insureds do not over insure their property
3) Prevent insureds from profiting from a loss
4) Encourage the insured to insure the property closer to its full value

Answer 1

The purpose of the coinsurance clause is to prevent insureds from profiting from a loss by requiring them to pay a portion of every loss based on the percentage of coverage they have.

Step-by-step explanation:

The purpose of the coinsurance clause found in property insurance policies is to prevent insureds from profiting from a loss.

Coinsurance requires the insured to pay a certain percentage of costs, ensuring that they do not receive more in insurance benefits than the property is worth.

For example, if a homeowner insures their property for less than its full value, the coinsurance clause would require them to pay a portion of any loss based on the percentage of coverage they have.