What is the implication of 'coinsurance' in an insurance contract?

The implication of 'coinsurance' in an insurance contract primarily indicates that the policyholder shares a portion of the risk. In a coinsurance arrangement, the insured agrees to carry an insurance amount that is a specified percentage of the total value of the property being insured. This encourages the policyholder to insure the asset for a significant portion of its value, as underinsuring can lead to penalties in the event of a claim.

When an insurer includes a coinsurance clause in a policy, it typically stipulates that if the insured property is not valued or insured to the agreed percentage of its value, the insurer may reduce the claim payout correspondingly. This mechanism is designed to promote shared accountability and ensure that policyholders do not underinsure their assets, which can lead to greater financial stability for both the insurer and the insured.

This understanding of coinsurance highlights its role in aligning the interests of the insurer and the policyholder, thereby fostering a sense of responsibility. The other choices may relate to different aspects of insurance agreements but do not accurately capture the primary purpose of coinsurance in risk sharing.