Los Angeles Claims Adjuster Property and Causality Practice Exam

What does the coinsurance clause in property insurance typically require?

1. Coverage for all damages regardless of value

2. Sharing in the loss based on a fixed percentage of insured value

3. Automatic payment of full claim amounts

4. Reduction of premiums after a loss

The correct answer is: Sharing in the loss based on a fixed percentage of insured value

The coinsurance clause in property insurance is designed to ensure that policyholders maintain an adequate level of coverage relative to the value of their insured property. Essentially, this clause requires that if a property owner insures their property for less than a specified percentage of its actual value, they may have to share in the loss when a claim is made. Under this clause, if a covered loss occurs, the insurer will calculate the payout based on the ratio of the amount of insurance carried to the amount of insurance required. If the property is underinsured, the insured will bear a portion of the loss. This mechanism incentivizes policyholders to insure their property for a value that reflects its true worth, thereby reducing the risk for both the insurer and the insured. This understanding of the coinsurance clause emphasizes its function in assessing insurance claims based on the pre-established terms laid out in the policy. Hence, sharing in the loss based on a fixed percentage aligns directly with the purpose of this clause in property insurance, making it the correct answer.