What might trigger the "coinsurance" clause in a property insurance policy?

The "coinsurance" clause in a property insurance policy is primarily designed to encourage policyholders to insure their property to a certain percentage of its value. When an insured underinsures the property, meaning they have coverage that is less than the stipulated coinsurance percentage of the property’s actual value, it triggers this clause.

In practical terms, if a policy contains a coinsurance requirement of, say, 80%, and the insured only carries insurance equal to 60% of the property's actual cash value, then in the event of a loss, the insurer may not fully compensate the policyholder based on the claims made. Instead, they will apply a penalty based on the amount of insurance coverage in relation to the actual value, leading to a reduced payout for the claim.

Thus, underinsuring the property not only affects the amount covered in case of a loss but also activates the coinsurance clause, which can have significant financial implications for the insured.