In which type of insurance is coinsurance typically applied?

Coinsurance is commonly applied in the context of property insurance, particularly in Commercial Property Insurance. This concept refers to a clause that requires the policyholder to insure their property to a specified percentage of its total value, which is often 80%, 90%, or 100%. If the insured value is set lower than this percentage, the policyholder may face a penalty at the time of loss, potentially receiving a lower claim payout in the event of a loss.

This mechanism incentivizes property owners to insure their buildings for a value that reflects the actual replacement cost, thereby fostering better risk management practices.

In contrast, auto insurance primarily deals with indemnifying losses related to vehicle damage or liability arising from accidents, where coinsurance is not typically a factor. Life insurance operates on a separate basis by providing a sum to beneficiaries upon the insured's death, without the complexity of assets requiring certain levels of coverage against loss, while homeowner's insurance may have provisions for replacement cost or actual cash value but does not usually incorporate coinsurance in the same manner as commercial policies.