What does the coinsurance clause in a homeowner's policy require?

The coinsurance clause in a homeowner's policy is designed to ensure that the property is insured for a sufficient percentage of its replacement value, thereby encouraging policyholders to adequately insure their homes. Specifically, this clause requires homeowners to carry insurance coverage that is at least a specified percentage—often 80%, 90%, or 100%—of the total replacement cost of the property. This requirement helps to avoid underinsurance, ensuring that in the event of a loss, the homeowner is compensated appropriately based on the extent of coverage maintained.

If a homeowner fails to meet this requirement and experiences a loss, the amount paid on a claim will be reduced according to the proportion of adequate coverage to the actual value of the property. Thus, maintaining appropriate coverage levels is essential for receiving full compensation in the event of a claim.

While full reimbursement for all losses, additional coverage for high-value items, and non-payment if the property is underinsured address various aspects of homeowner insurance, they do not accurately reflect the primary function of the coinsurance clause.