What does 'co-insurance' entail?

Co-insurance refers to a provision in insurance policies where the insured is required to share in the loss coverage. This typically means that the insured holds a proportionate share of the risk and is responsible for a percentage of any covered loss. In property insurance, for example, a policy may stipulate that the insured must maintain coverage on their property equal to a certain percentage of its total value. If they fail to do so, they would face a penalty in the event of a claim, meaning they would be responsible for a portion of the loss out of pocket.

This concept of co-insurance serves to encourage policyholders to insure their property adequately and helps to prevent underinsurance, ensuring that both the insurer and insured are sharing the financial risks associated with loss.