What is the function of a ‘coinsurance clause’?

The function of a coinsurance clause is to encourage policyholders to insure their property for a specified percentage of its value, typically 80%, 90%, or 100%. This clause is designed to ensure that the insured carries an adequate level of insurance relative to the property's actual value. If a policyholder does not insure the property for at least the specified percentage of its value, they may face a penalty when submitting a claim, which could result in reduced payout amounts. This mechanism promotes responsible insurance practices by discouraging underinsurance, ultimately protecting both the insurer and the insured in the event of a loss.

The other options focus on different aspects of insurance but do not capture the primary purpose of a coinsurance clause. Claims limitations relate to policy limits rather than the valuation aspect, while the elimination of deductibles pertains to different types of coverages. Extending coverage to additional parties is a separate issue concerning named insureds and additional insureds. Therefore, the emphasis on ensuring proper valuation through the coinsurance requirement is key to understanding its role in an insurance policy.