What is the minimum coinsurance requirement for coverage extensions to apply?

The minimum coinsurance requirement for coverage extensions to apply is 80 percent. This requirement is significant because it ensures that the property insured maintains a sufficient level of coverage relative to its actual cash value or replacement cost. When an insurance policy includes a coinsurance clause, it incentivizes the policyholder to adequately insure their property; otherwise, they risk suffering a penalty in the event of a claim.

Under this 80 percent requirement, if the insured property is covered for at least 80 percent of its total value, the full benefit of coverage extensions will apply. This arrangement is designed to reduce the likelihood of underinsurance, thereby protecting both the insurer and the insured. A low coinsurance percentage, such as 70 percent, would not provide a strong enough incentive for policyholders to insure their property adequately. Similarly, higher percentages like 90 percent or 100 percent increase the requirement beyond standard practice, potentially discouraging policyholders from obtaining insurance due to higher costs. Thus, 80 percent strikes a balance that promotes adequate insurance coverage while remaining feasible for policyholders.