Which of the following is a characteristic of a co-insurance agreement?

A co-insurance agreement is a clause that requires the policyholder (insured) to bear a specific percentage of the loss. This means that if the insured does not insure their property to a certain percentage of its value, they may have to pay a larger share of a claim when it occurs. The intent of co-insurance is to encourage policyholders to insure their property to its full value, thus sharing the risk between the insurer and the insured.

In practical terms, if a property is worth $100,000 and the insured has only $80,000 in coverage, and the co-insurance requirement is 80%, then in the event of a loss, the insured would only receive a proportional amount after applying the penalty for underinsurance. Therefore, this characteristic emphasizes the importance of maintaining proper insurance coverage to avoid potentially significant out-of-pocket expenses during a claim.

This definition effectively highlights the crucial aspect of the agreement that plays a central role in many insurance policies, firmly establishing why this answer is the correct one.