If a policy is written with 100% co-insurance, what does that imply?

• A. It sets a fixed deductible for all losses.
• B. It guarantees coverage for all perils beyond policy limits.
• C. It only applies to the first loss of a year.
• D. It subjects the insured to penalties if coverage is not at 100% of value.

Answer: (D)

Coinsurance is a provision that aligns the insured’s coverage with the property’s value. When the policy is written with 100% coinsurance, the expectation is that you insure the property to its full value. If you insure for less than full value, a coinsurance penalty applies: the insurer pays only a proportion of the loss based on the ratio of your actual coverage to the full value, and you must cover the rest. For example, if the property value is 100 and you insure for 80, and a loss of 50 occurs, the payout would be 50 × (80/100) = 40, so you absorb 10 yourself. This is why penalties occur when coverage isn’t at 100% of value. The other statements describe different concepts (deductibles, guaranteed perils beyond limits, or first-loss rules) that aren’t how coinsurance operates.