What does the term "coinsurance" typically refer to in property insurance?

The term "coinsurance" in property insurance primarily involves a method of sharing responsibility between the insurer and the insured in the event of a loss. This means that both parties have an obligation to contribute towards the loss based on the agreed-upon coverage amount.

When a coinsurance clause is included in a property insurance policy, it typically stipulates that the insured must maintain coverage equal to a specified percentage of the property's value, often 80%, 90%, or 100%. If the insured does not maintain this minimum level of coverage and a claim occurs, the insured may only receive a payout that reflects the actual coverage level rather than the full value of the damage. Therefore, it also serves as an incentive for policyholders to insure their property adequately.

While the definition associated with underinsurance might seem relevant, the primary function of the coinsurance clause focuses on ensuring adequate coverage and shared responsibility in claims handling, rather than strictly being a penalty. Therefore, it is the shared responsibility between the insurer and insured that captures the essence of coinsurance in property insurance.