Co-Insurance Penalty
Definition:
A financial penalty applied when the insured property is underinsured relative to its replacement cost.
Explanation:
Some policies require the property to be insured for a minimum percentage of its value (often 80%). Failing to meet that threshold reduces the payout on a claim.
Example:
If your home is worth $400,000 but insured for only $200,000, you may receive only part of your claim payment after a fire.
Why it matters:
This term affects how claims are handled and what payout a homeowner may receive.