What is the purpose of a 'coinsurance clause' in a property insurance policy?

A coinsurance clause in property insurance requires the insured to carry coverage equal to a specified percentage — commonly 80% — of the property's replacement value. If the insured carries at least that percentage, partial losses are paid in full (up to the limit). If the insured is underinsured below the required percentage, a coinsurance penalty reduces the claim payment proportionally, using the formula: (amount carried ÷ amount required) × loss. This encourages insureds to insure to value rather than buying minimal coverage. Note this property coinsurance is different from health insurance coinsurance. Understanding the property coinsurance clause and its penalty is commonly tested claims content.