If an insured does not meet the coinsurance requirement, what happens to the settlement?

When an insured fails to meet the coinsurance requirement, the settlement is reduced by the percentage that the property is underinsured. Coinsurance is a provision found in property insurance policies that requires the insured to maintain a certain level of coverage—typically a percentage of the property's total value—to receive full benefits in the case of a loss.

If the insured does not meet this requirement at the time of a loss, the insurance company applies a penalty to the settlement amount. The reduction corresponds to how much less coverage the insured has compared to the coinsurance requirement. This means that the insurance payout will be less than what it would have been had the insured adequately fulfilled the coinsurance condition.

For instance, if the property value is $100,000, and the coinsurance requirement is set at 80%, the insured would need to maintain at least $80,000 in coverage. If they only have $60,000 in coverage, they are underinsured by $20,000, which results in a significant reduction in the amount the insurer will pay in the event of a claim. Thus, understanding coinsurance and its implications on settlements is crucial for policyholders to ensure they are adequately covered and avoid penalties in case of a loss.