If a property insurance policy requires a coinsurance percentage and it is not maintained, what happens?

• A. The insurer increases the premium
• B. The deductible is waived
• C. The policy becomes invalid
• D. The insured will not be reimbursed for the full loss

Answer: (D)

Coinsurance in property insurance means you must insure the property for a specified percentage of its replacement cost. If you don’t meet that percentage at the time of a loss, the insurer reduces the payout proportionally to the ratio of the amount you carried to the amount required. This shifts part of the loss to the insured even after the deductible.

For example, if replacement cost is 200,000 and the policy requires 80% coverage (160,000), but you only carry 120,000, a 40,000 loss would be paid as (120,000 / 160,000) × 40,000 = 30,000 (before deductible). You would bear the remaining loss amount and the deductible. So you will not be reimbursed for the full loss.