Rhode Island Insurance Adjuster Exam

What typically happens under a co-insurance agreement?

1. The insurer pays 100% of any claim

2. The insured pays 50% of all claims

3. The insurer pays 80% and the insured pays 20%

4. The insured always pays the full premium amount

The correct answer is: The insurer pays 80% and the insured pays 20%

A co-insurance agreement is a common aspect of many insurance policies, particularly in property insurance. Under this arrangement, both the insurer and the insured share the costs of claims, with the goal of encouraging the policyholder to insure their property to a proper value. In this context, the correct answer reflects a typical split where the insurer covers 80% of an eligible claim, implying that the insured is responsible for the remaining 20%. This percentage is often determined by the co-insurance clause in the policy, which generally stipulates that the policyholder must maintain a certain level of coverage (often 80% of the property’s value) to avoid penalties in the event of a claim. If the insured has met the requirements set forth in the agreement by maintaining adequate coverage, the arrangement helps protect both parties’ interests while promoting responsible insurance practices. This shared responsibility helps mitigate moral hazard by discouraging underinsurance, ensuring that the policyholder has a vested interest in the value of their property. This concept is important as it emphasizes the significance of properly insuring a property to benefit fully from the coverage during a claim.