What percentage of total value should the total value of insurance equal according to coinsurance principles?

In the context of property insurance, coinsurance is a principle designed to encourage policyholders to insure their property for a value that reflects its actual worth. According to standard industry practice, particularly under the guidance of coinsurance clauses, the typical percentage that the total value of insurance should equal is 80%. This means that a property should be insured for at least 80% of its total actual cash value or replacement cost to avoid penalties in the event of a loss.

When a policyholder underinsures their property, they run the risk of facing a coinsurance penalty, which could lead to less coverage in the event of a claim. By adhering to the 80% coinsurance requirement, it ensures that the insurer is adequately protected from large claims while also encouraging policyholders to carry sufficient insurance to cover potential losses.

While there may be options for different levels of coinsurance (such as 70% or 90%), the industry standard remains at 80% to maintain consistency in assessing risk and ensuring adequate property protection. Therefore, selecting 80% as the percentage aligns with the established guidelines in property insurance regarding coinsurance principles.