What role does 'co-insurance' play in property insurance?

Co-insurance in property insurance is a critical concept that helps ensure that policyholders maintain a sufficient level of coverage relative to the actual value of their property. Option C correctly identifies that co-insurance requires policyholders to carry a specific percentage of coverage in relation to their property's total value, typically outlined in their insurance policy. If a policyholder fails to meet this required percentage and files a claim, they may face penalties, such as reduced payouts.

This requirement encourages property owners to insure their property to a level that reflects its true value, thereby minimizing the risk of underinsurance. For example, if a property valued at $100,000 has a co-insurance requirement of 80%, the policyholder must maintain at least $80,000 in coverage. If they only insure it for $60,000 and subsequently suffer a loss, the insurance company may reduce the claim payout since the coverage falls short of the necessary amount.

In contrast, the other options do not accurately illustrate the role of co-insurance. Full payment for any claim depends on the terms of the policy and the extent of coverage. Increasing coverage limits can be an option offered by some policies, but it is not inherently related to the co-insurance clause. Lastly, defining