Question

All of the following are true of coinsurance EXCEPT:

1) The coinsurance formula will also be applied to total losses
2) It is used to help adequacy and equity in rates
3) Insured agrees to maintain insurance equal to some specified percentage of the value of the property
4) If the insurance carried is less than required, the insurance may not cover the whole loss

Answer 1

Coinsurance in insurance policies requires the insured to pay a percentage of the costs of a covered loss, while the insurance company pays the rest. It helps maintain adequate coverage and promotes fairness in insurance rates. If the insurance carried is less than the specified percentage, the insurance may not cover the whole loss.

Step-by-step explanation:

Coinsurance is a concept commonly used in insurance policies to help distribute the risk between the policyholder and the insurance company. It requires the insured to pay a specified percentage of the costs of a covered loss, while the insurance company pays the rest. The purpose of coinsurance is to ensure that the policyholder maintains adequate coverage and to promote fairness in insurance rates. If the insurance carried by the policyholder is less than the specified percentage, the insurance may not cover the entire loss.