What does 'co-insurance' mean regarding property insurance?

In the context of property insurance, co-insurance refers to a clause that requires the insured party to maintain a specific level of coverage relative to the total value of the property being insured. This means that if the insured does not carry a specified percentage of the total value of the property, they may face penalties during claims. For example, if a policy has an 80% co-insurance clause, the insured must ensure that they carry at least 80% of the property's value in coverage. If they fail to meet this requirement, they may receive a reduced payout in the event of a claim, which could lead to significant financial loss.

The emphasis on maintaining adequate coverage is crucial for effective risk management in property insurance, as it protects both the insurer’s and insured's interests by ensuring that the property is adequately covered against potential losses.