What does the term "co-insurance" refer to in property insurance?

The term "co-insurance" in property insurance specifically refers to a clause that requires the insured to maintain coverage equal to a specified percentage of the property's value. This requirement helps ensure that policyholders have sufficient insurance to cover potential losses, which in turn prevents underinsurance. If a property owner fails to maintain the required level of coverage, they may face a penalty in the event of a claim, which reduces the amount paid out based on the percentage of coverage maintained relative to the property's actual value.

This concept supports the principle of indemnity, as it encourages property owners to insure their property adequately. Thus, if a policyholder only insures their property for less than the stipulated percentage, any payout in the event of a claim could be significantly reduced, reflecting the ratio of actual coverage to required coverage.

Other options, such as calculating refunds or providing discounts for long-term policyholders, do not align with the concept of co-insurance. Instead, they pertain to different facets of insurance policies or customer incentives. The option regarding higher coverage limits in specialty markets relates to specific policy provisions rather than the fundamental premise of co-insurance, which focuses on the required coverage levels relative to the property's value.