What does “coinsurance” mean in property insurance?

Coinsurance in property insurance refers to a specific requirement included in many property insurance policies. This requirement mandates that the insured maintain a certain level of coverage in proportion to the actual value of the property being insured. The purpose of this clause is to ensure that the policyholder carries sufficient insurance relative to the value of their property, encouraging them to insure a minimum percentage, often expressed as a ratio such as 80%, 90%, or 100%.

When the insured fails to meet this coinsurance requirement, it can result in reduced claims settlements when a loss occurs. If the property is underinsured at the time of a loss, the insurer may invoke a penalty whereby the claim payout is decreased based on the ratio of what was actually insured compared to what should have been insured. This means that maintaining the appropriate level of coverage is crucial for policyholders to fully protect their investment and receive fair reimbursement in the event of a loss.

The other options address different concepts in insurance. The discount for bundling policies does not pertain to the coinsurance requirement; instead, it's a marketing strategy insurers may offer. The penalty for underinsuring a property is related but does not capture the essence of what coinsurance refers to, which is the actual requirement for coverage.