Which of the following represents a situation covered by coinsurance?

Coinsurance is a provision commonly found in property insurance policies that requires the policyholder to insure their property for a certain percentage of its total value. If they fail to do so and suffer a loss, they may share in that loss because their coverage is deemed inadequate.

In this context, if the insured is underinsured, it means they did not purchase enough coverage relative to the actual value of the property. So, if a loss occurs, they will not receive full compensation and will instead bear part of the loss. This is the essence of coinsurance; it creates a shared responsibility between the insurer and the insured, where the amount paid for a loss is reduced in proportion to the degree of underinsurance.

This understanding of coinsurance clarifies that the other scenarios do not fit the definition. For example, if all losses were paid in full regardless of coverage, that would negate the concept of coinsurance, and a situation where only partial damages are paid does not align with the insured sharing in the loss because it may imply a total loss is being covered inadequately. Likewise, liability insurance involving third-party claims operates under different principles that do not relate to coinsurance dynamics in property coverage.