(1) A property insurance provision
that penalizes the insured's loss recovery if the limit of insurance
purchased by the insured is not equal to or greater than a specified
percentage (commonly 80 percent) of the value of the insured property.
The coinsurance provision specifies that the insured will recover
no more than the following: the amount of the loss multiplied by
the ratio of the amount of insurance purchased (the limit of insurance)
to the amount of insurance required (the value of the property on
the date of loss multiplied by the coinsurance percentage), less
the deductible. The amount of the loss that is not payable to the
insured as a result of failure to comply with the coinsurance provision
is commonly referred to as a coinsurance penalty. In commercial
property insurance policies, it is sometimes possible to avoid the
possibility of a coinsurance penalty with an agreed value provision.
(2) In health insurance and some casualty lines, the percentage
share of losses that an insured retains. It is a form of deductible.
Agreed value coverage option or provision.
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PracRisk, Topic F-1;