What does the Coinsurance Clause require homeowners to do if they have inadequate property insurance coverage?

• A. Pay a percentage of the claim
• B. File for tax deductions
• C. Increase their premiums significantly
• D. Reduce coverage limits

Answer: (A)

The Coinsurance Clause in property insurance policies is designed to ensure that policyholders maintain an adequate level of insurance coverage relative to the total value of their property. If a homeowner does not carry sufficient insurance to meet the requirements stipulated by the coinsurance clause, they may face a financial penalty in the event of a claim.

When a claim is made and the homeowner has inadequate coverage, the clause requires that they bear a proportion of the loss themselves. This means that they will have to pay a percentage of the claim amount, reflecting the shortfall in their coverage. Essentially, the homeowner is penalized for underinsuring their property by having to pay out of pocket for a portion of the claim.

This provision encourages homeowners to insure their property for a value close to its actual worth, thereby protecting both the insurer from large, underinsured claims and the homeowner from significant financial loss in a disaster situation. The other options mentioned do not align with the function or intent of the coinsurance clause; they would not be appropriate actions homeowners need to take in response to undercoverage.