Idaho Property and Casualty Practice Exam 2025 - Free Practice Questions and Study Guide

The coinsurance clause in property insurance is designed to ensure that policyholders maintain a certain level of coverage relative to the value of their property. This requirement is typically expressed as a percentage, meaning that the policyholder must carry insurance equal to that percentage of the property's total value.

By adhering to this clause, the policyholder avoids penalties, which may include reduced payouts during a claim. If the insured amount falls below the stipulated percentage, the insurer will apply a formula to determine the payout at the time of a loss, which can result in the policyholder receiving less than they would if they had maintained adequate coverage. The essence of the coinsurance clause is to incentivize policyholders to insure their properties adequately, ensuring that losses are fully covered and that both the insurer and insured are protected against the risks of underinsurance. This is fundamentally how the clause functions within property insurance.

The other options do not accurately reflect the purpose and operation of the coinsurance clause. For instance, it does not inherently allow for higher claim payouts, promote underinsurance, or adjust premiums based on claims history—these aspects pertain to different facets of insurance policies and practices.