What does "coinsurance" refer to in a property insurance policy?

Coinsurance in a property insurance policy is a provision that requires the insured party to maintain coverage at or above a specified percentage of the property's value, typically 80%, 90%, or 100%. This provision ensures that the insured has a vested interest in maintaining adequate coverage for their property. If the insured fails to meet this requirement, they may face a reduced payout in the event of a claim, which serves as an incentive for policyholders to ensure that their properties are sufficiently insured against loss.

By requiring a certain level of insurance coverage relative to the value of the property, coinsurance helps to mitigate the risk to the insurer. This means that both parties have a level of responsibility in maintaining adequate coverage. If a loss occurs and the insured has not met the coinsurance requirement, the insurer may apply a penalty, decreasing the amount they would otherwise pay out, based on the ratio of the actual coverage to the required coverage.

The other options mentioned do not accurately describe coinsurance, as they pertain to different aspects of insurance policy transactions, such as premium adjustments or discounts based on claims history, rather than the requirement for maintaining a specific level of coverage in relation to the value of the insured property.