What is the primary benefit of coinsurance in property insurance?

The primary benefit of coinsurance in property insurance is to ensure that policyholders have a vested interest in the property value. Coinsurance clauses require policyholders to insure their property for a specified percentage of its total value, often set at 80% or 90%. This requirement encourages property owners to carry adequate insurance coverage. If they underinsure their property, they may face penalties in the event of a claim, which can result in a reduced payout.

By promoting adequate coverage, coinsurance aligns the interests of both insurers and insured individuals. It mitigates the risk of moral hazard, where insured parties might otherwise be less cautious about protecting their property because they would not fully bear the financial consequences of a loss. Consequently, policyholders are incentivized to maintain their property and ensure it is insured to its full value, ultimately benefiting all parties involved in the insurance contract.