What is a co-insurance clause in property insurance?

The co-insurance clause in property insurance is designed to ensure that policyholders maintain a certain level of coverage relative to the total value of their insured property. Specifically, this requirement is typically expressed as a percentage. For example, if a co-insurance clause stipulates an 80% coverage requirement, the insured must carry at least 80% of the property's replacement value to be eligible for full compensation in the event of a loss.

If the policyholder fails to maintain this required level of insurance, they may experience a penalty in the form of a reduced claim payout. This mechanism encourages property owners to insure their properties adequately and prevents underinsurance, which could lead to financial hardship for both the insurer and the insured if a significant loss occurs.

The other options describe different aspects of insurance that do not relate to how co-insurance functions. For instance, additional coverage for personal belongings or waivers of deductibles are specific benefits or terms that enhance coverage but do not relate directly to the principle of maintaining a certain value of insurance in relation to the property's worth. Similarly, provisions against fraud deal with the conduct of the policyholder and the insurer's liability, which is a separate matter altogether.