Which statement describes 'coinsurance'?

Coinsurance is a principle commonly found in property insurance that requires policyholders to insure their property to a certain percentage of its value. This is designed to ensure that the policyholder shares in the risk of loss. In practice, if a policyholder does not meet the coinsurance requirement, they may face a penalty in the event of a claim, receiving only a proportionate amount of the loss based on the amount they insured relative to the actual value.

By requiring policyholders to carry a specified percentage of coverage, coinsurance encourages them to take care in determining the correct value of their property and helps the insurer maintain more balanced risk. This practice also aids in preventing underinsurance, ensuring that policyholders are not excessively relying on the insurer for full coverage without bearing some of the risk themselves.

In contrast, other statements reflect different insurance concepts. Full compensation of all losses incurs a different type of coverage and does not address the shared risk aspect of coinsurance. Total risk transfer is characteristic of certain types of insurance structures, but it does not accurately describe coinsurance, where the policyholder retains some risk. Lastly, the elimination of deductibles is unrelated to the concept of coinsurance, which involves the proportional sharing of risk and does not inherently affect deductible structures.