What does a coinsurance clause in an insurance policy require?

A coinsurance clause in an insurance policy specifies that the insured must maintain a certain level of coverage relative to the value of the property. This is particularly relevant in property insurance, where the insured is required to insure the property for a specified percentage of its total value, typically 80%, 90%, or 100%.

If a property is underinsured at the time of a loss, the coinsurance clause will impose a penalty on the claim payment, reducing the amount the insurer will pay to reflect the amount of coverage that was maintained compared to the required amount. This helps ensure that the policyholder has adequate coverage to protect against losses, thereby sharing the risk between the insurer and the insured.

The other options do not relate directly to the definition or function of a coinsurance clause. Suggestions for additional coverage, regular inspections of property, and payment of premiums on a semi-annual basis pertain to different aspects of insurance policies and risk management, but they do not encapsulate the core requirement established by a coinsurance clause.