What does a coinsurance clause in an insurance policy require?

A coinsurance clause in an insurance policy requires that buildings or insured properties be covered for a minimum percentage of their total value, typically around 80% to 90%. This clause primarily serves to ensure that the policyholder maintains a sufficient level of insurance to cover potential losses. If the insured value falls below this required minimum, the insurer may penalize the policyholder by reducing the payout on claims, reflecting the proportion of the property actually insured.

By requiring a minimum percentage of coverage, the coinsurance clause encourages policyholders to adequately insure their property to avoid underinsurance, which can lead to significant financial losses in the event of a claim.