What does the usual coinsurance clause state?

The usual coinsurance clause is designed to encourage policyholders to maintain adequate insurance coverage relative to the value of their property. This requirement typically specifies that a property owner must insure their property for a percentage of its total value, often 80%, 90%, or 100%, depending on the specific policy. If they fail to meet this stipulated amount at the time of a loss, the insurer will calculate the payout based on the ratio of the actual coverage carried to the required coverage dictated by the policy. For instance, if a property valued at $100,000 is only insured for $60,000, and a loss occurs that equals $30,000, the insurer will only pay a portion of the loss based on the coinsurance calculation. The policyholder would face a penalty in terms of the claim payout due to under-insurance.

This mechanism serves to protect insurers from underinsurance while encouraging property owners to adequately cover their assets to avoid significant financial loss in the event of a claim.