Registered Insurance Brokers of Ontario (RIBO) Practice Exam

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What is the purpose of a co-insurance clause in an insurance policy?

To limit the insurer's liability
To encourage insurance to value
To provide tax benefits
To define the duration of the policy

The correct answer is: To encourage insurance to value

The co-insurance clause in an insurance policy serves to encourage policyholders to insure their property for its actual value. This concept is based on the idea that a property should be insured for a percentage of its total value—typically 80% to 100%—to ensure that claims are settled fairly and adequately. If the property is underinsured and a claim occurs, the co-insurance clause could lead to a reduction in the payout, reinforcing the importance of carrying adequate insurance coverage. In contrast, limiting the insurer's liability, providing tax benefits, or defining the duration of the policy do not align with the specific purpose of a co-insurance clause. Coinciding with the encouragement to insure appropriately can enhance financial protection and discourage underinsurance.