What is the primary function of coinsurance in an insurance policy?

The primary function of coinsurance in an insurance policy is to ensure that the insured pays a portion of the claim amount. Coinsurance is a provision that requires the policyholder to maintain a certain level of insurance coverage, often expressed as a percentage of the property's total value. If the insured fails to meet this required level of coverage, they may be penalized by receiving a reduced payout on claims.

This mechanism encourages policyholders to insure their property to a value closer to its actual worth. For instance, if a property is worth $500,000, but the owner only carries insurance for $400,000, they may face a penalty in the event of a claim. This creates a shared responsibility between the insurer and the insured, as the insured is motivated to provide adequate coverage. This aligns the interests of both parties and helps in premium calculations and risk management.

In contrast, other options pertain to different aspects of insurance coverage that do not specifically relate to the function of coinsurance. For example, covering the total replacement cost without limitation would not involve shared responsibility, and eliminating liability for damages contradicts the purpose of insurance as a risk-sharing mechanism. Similarly, providing full coverage without a deductible does not reflect the principles of coinsurance, which inherently involves