Los Angeles Claims Adjuster Property and Causality Practice Exam

Which clause allows the insured to pay a higher percentage on a loss if they underinsure?

1. Loss Deduction Clause

2. Coinsurance Clause

3. Underinsurance Clause

4. Appraisal Clause

The correct answer is: Coinsurance Clause

The coinsurance clause plays a critical role in property insurance policies by encouraging policyholders to insure their properties for a specified percentage of their value. If the insured fails to maintain this minimum amount of coverage, the coinsurance clause stipulates that they will be penalized in the event of a loss. Specifically, this clause requires the insured to bear a greater portion of the loss, proportional to the amount they are underinsured. For instance, if a property owner insures their building for only 70% of its value when the policy requires an 80% coverage level, they could potentially receive a smaller payout in the event of a claim. This clause ensures that policyholders have an incentive to carry adequate insurance coverage to reflect the true value of their property, thus affording them better protection and reducing the risk for the insurer. The inclusion of such a clause means that underinsurance can result in a shared financial responsibility between the insurer and the insured during the loss settlement, effectively penalizing the insured for not insuring to the required level. This understanding of the coinsurance clause is vital for claims adjusters as they assess claims and determine the appropriate payouts based on policy compliance.