Under what condition might an insured receive a coinsurance penalty?

An insured may receive a coinsurance penalty primarily when they under-insure their property. Coinsurance is a provision commonly found in property insurance policies that requires the insured to maintain insurance equal to a specified percentage of the property's value, often set at 80%, 90%, or 100%. If the insured carries an amount that is less than this required threshold, they may face a penalty when filing a claim.

For instance, suppose a property is valued at $100,000, and the policy requires that the insured carry at least 80% of that value, which would be $80,000. If the insured only carries $50,000, they are under-insured. In the event of a loss, the insurer may apply a coinsurance penalty, reducing the amount paid out on the claim based on the ratio of the actual coverage to the required coverage. This penalty exists to encourage policyholders to insure their property to its full value to ensure adequate coverage in the event of a loss.

The other conditions listed do not lead to a coinsurance penalty; they may impact coverage or claims in different ways but do not relate to the fulfillment of the coinsurance requirement itself. For example, over-insuring property or failing to file a claim doesn't