Certified Manager of Community Associations (CMCA) Practice Exam 2026 - Free CMCA Practice Questions and Study Guide

The coinsurance clause in property insurance policies is designed to encourage policyholders to insure their property to a value that reflects its actual worth. This clause typically stipulates that if the insured value is less than the coinsurance percentage (often 80%, 90%, or 100%), the insured will suffer a penalty in the form of reduced claims payment when a loss occurs. Therefore, when the insured does not carry adequate insurance to meet this requirement, they may have to pay a portion of the loss out of pocket, effectively penalizing them for underinsurance.

This system promotes responsible insurance practices by discouraging policyholders from underinsuring their property, which could result in significant losses for the insurer in the event of a claim. Understanding this characteristic helps insured individuals recognize the importance of evaluating their coverage levels in relation to the actual value of their property.