What is the co-insurance clause in insurance policies?

The co-insurance clause is a provision that requires policyholders to maintain a minimum level of insurance coverage based on the total value of the property being insured. This clause is often included in property insurance policies to ensure that the insured maintains a certain level of protection that reflects the value of the property.

If the amount of insurance coverage falls below a specified percentage (commonly 80% or 90%) of the property's value, any claims made may result in reduced compensation based on the actual coverage. This ensures that insurers are protected from underinsurance, which, in turn, incentivizes property owners to insure their properties adequately. The co-insurance clause works by linking the amount of insurance taken out to the current value of the property, thereby helping to ensure that both parties—the insurer and the insured—are safeguarded in the event of a loss.