Washington State Insurance Practice Exam

In property insurance, what does coinsurance specify?

1. The total amount of coverage required

2. The percentage of a claim the insured is responsible for

3. The calculation of policy premiums

4. The limits on property value for claims

The correct answer is: The percentage of a claim the insured is responsible for

Coinsurance in property insurance specifies the percentage of a claim that the insured is responsible for, often functioning as a method to encourage policyholders to purchase a sufficient amount of coverage relative to the value of the insured property. Under a coinsurance clause, if the insured does not maintain coverage that meets the required percentage of the property's value, they may face a reduction in the payout for a claim. This means that if a loss occurs, the insured bears a portion of the costs associated with that loss, which can lead to financial consequences if they have not sufficiently covered their property. The concept as a whole aims to maintain a balance between the insurer's and the insured's responsibilities, ultimately encouraging the insured to carry appropriate limits that accurately reflect the value of what is being insured. This relationship has significant implications for how claims are paid and underscores the importance of understanding the coverage limits and maintaining adequate insurance.