What does the Loss Settlement Provision (Coinsurance Clause) require?

The Loss Settlement Provision, commonly known as the Coinsurance Clause, requires that the property must be insured to a certain percentage of its value, typically specified in the policy (often 80%, 90%, or 100%). This means that if the insured value of the property is less than the required percentage of its actual value, and a loss occurs, the insurer may reduce the payout based on the ratio of the actual coverage to the required coverage.

For example, if a property is valued at $200,000 and is only insured for $150,000 with an 80% coinsurance requirement, the insured would only recover a portion of any claims based on this underinsurance. This provision encourages policyholders to insure their property adequately, ensuring that in the event of a loss, sufficient coverage is available to cover the loss adequately and reducing the insurer's risk.

The other options do not accurately describe the primary function of the Loss Settlement Provision. While additional premiums may be associated with increased coverage, the primary focus of this provision is on ensuring adequate coverage amounts. Discounts on premiums or timelines for filing claims are also not directly related to the requirements set forth by the Coinsurance Clause.