What is the 'co-insurance' provision in property insurance?

Co-insurance in property insurance requires the insured to carry coverage equal to a specified percentage (typically 80%) of the property's full replacement cost value. If the insured fails to meet this requirement at the time of loss, a co-insurance penalty applies: the insurer pays only the proportion of the loss that the carried coverage bears to the required coverage. Formula: (Amount of Insurance Carried / Amount Required) × Loss = Payment. Example: a home with $500,000 replacement cost requires $400,000 coverage (80%); if the insured carries only $200,000, they have 50% of required coverage; a $20,000 loss would result in $10,000 payment (minus deductible). Co-insurance discourages under-insurance and ensures actuarial fairness. Most ISO homeowners forms include an 80% coverage requirement on Coverage A. Inflation guard endorsements help maintain compliance over time.