Which of the following describes the concept of co-insurance?

• A. A requirement for immediate claim payments
• B. A shared cost agreement expressed as a percentage
• C. A guarantee of full coverage for all losses
• D. A limit on the number of claims that can be made

Answer: (B)

Co-insurance refers to a shared cost agreement that is expressed as a percentage. This concept is typically utilized in property insurance, where it requires policyholders to insure their property for a specified percentage of its value, usually around 80% or 90%. If the amount of coverage falls below this percentage, the insurer may apply a penalty at the time of claim, resulting in a reduced payout. This arrangement encourages policyholders to maintain adequate coverage relative to the property’s value and helps mitigate the risk for insurers by ensuring that the cost of claims is more evenly distributed.

The other options do not accurately reflect the co-insurance concept. For example, immediate claim payments are not a characteristic of co-insurance, as claims are typically assessed and processed according to the policy's terms. Similarly, co-insurance does not guarantee full coverage for all losses, as it imposes a basic requirement for coverage level. Lastly, while a limit on the number of claims can exist in some insurance policies, this is not a defining feature of co-insurance.