If the minimum required coinsurance is not carried, how are partial losses typically handled?

In insurance, coinsurance is a provision that requires the policyholder to carry a minimum amount of insurance relative to the value of the property. When the required coinsurance is not met, the insurer typically applies a penalty that affects the payout for a claim.

In cases where there is a partial loss and the policyholder has not carried the minimum required coinsurance, the insurer will generally pay only a portion of the loss, rather than the full amount. This is based on a formula that considers the actual amount of insurance carried versus the amount of insurance that should have been carried based on the property's value.

This means that if a loss occurs and the coverage is deemed inadequate, the insurer will reduce the claim settlement in proportion to the degree of underinsurance. For example, if a property valued at $100,000 has only $70,000 in coverage when a minimum of $80,000 was required, the claim payment will factor in this shortfall. Therefore, the policyholder will receive a payment that reflects this penalty for not adhering to the coinsurance requirement rather than receiving a full settlement or any other form of payment noted in alternative options.