What does the term 'co-insurance' refer to in property insurance?

In property insurance, the term 'co-insurance' specifically refers to a requirement for the insured to maintain a minimum level of coverage that is a specified percentage of the property's value. This concept is designed to encourage policyholders to insure their properties for an adequate amount, which minimizes the risk for both the insurer and insured.

If a property owner fails to meet this required level of coverage, they may face a penalty in the event of a claim, where the payout could be significantly reduced based on the amount of insurance they actually purchased versus the amount required by the co-insurance clause. For example, if a property’s actual value is $100,000 and the co-insurance requirement is 80%, the owner is expected to maintain at least $80,000 in coverage. If they only have $60,000 in coverage and a total loss occurs, their claim payment would be calculated accordingly, potentially resulting in a financial disadvantage.

The other options, although related to insurance, do not accurately describe co-insurance. The concept is not a type of deductible, nor does it pertain to the total value of a property or additional coverage for luxury items. Instead, co-insurance is directly linked to the proportion of risk and the necessity for adequate coverage