What is the main purpose of a coinsurance clause in an insurance policy?

The primary purpose of a coinsurance clause in an insurance policy is to ensure that the insured has sufficient coverage. This clause typically requires the policyholder to carry insurance that is proportional to the value of the property being insured. If the insured does not meet the coinsurance requirement, they may face penalties at the time of a claim, which could result in receiving a reduced payout.

By encouraging policyholders to reflect accurately the value of their insured assets, the coinsurance clause aims to protect both the insurer and the insured. The insurer minimizes its risk by requiring an adequate level of coverage, while the insured benefits by having more comprehensive protection for their assets. This reciprocal relationship fosters responsible insurance practices and helps mitigate the risks associated with underinsurance.