What is "co-insurance" in property insurance?

Co-insurance in property insurance is specifically a provision that mandates the policyholder to insure the property for a specified percentage of its calculated value. This percentage is typically set at 80%, 90%, or sometimes 100% of the property’s value, and is designed to encourage policyholders to maintain adequate coverage. If the insured value falls below this percentage at the time of a loss, the policyholder may have to bear a portion of the loss that reflects the degree of underinsurance. Therefore, if a property is valued at $100,000 and the co-insurance requirement is 80%, the policyholder must insure the property for at least $80,000 to avoid penalties in the event of a claim.

This provision serves to protect both the insurer and the insured, ensuring that adequate funds are available for repair or replacement, while also helping to keep premium costs in check by minimizing the risk of underinsurance. Co-insurance interruptions can significantly impact a policyholder's loss payments, reinforcing the necessity to comply with the specified insurance requirements.