What does coinsurance refer to in property insurance?

Coinsurance in property insurance refers to the concept where the policyholder is required to maintain a certain percentage of the property's value insured. If the insured amount is less than this required percentage at the time of a loss, the insured will share in the losses. This sharing occurs because the insurance company expects the policyholder to insure their property to a specified level. Essentially, coinsurance penalizes the policyholder for underinsuring their property.

For instance, if there is a 80% coinsurance requirement and the insured property is valued at $100,000, the policyholder must carry at least $80,000 in coverage. If they only have $60,000 insured and then suffer a loss, the claim payout will be reduced to reflect that they did not meet the coinsurance requirement. This concept emphasizes the importance of adequate coverage, as it directly impacts the amount that the insurer will pay out in the event of a loss.