Which statement regarding coinsurance is NOT true?

The statement that is not true regarding coinsurance is that the coinsurance formula will also be applied to total losses. In the context of property insurance, coinsurance typically applies to partial losses rather than total losses. When a total loss occurs, the policy generally pays the full coverage amount, provided that the insured value was adequate and the terms of the policy are met.

Coinsurance is designed to encourage policyholders to insure their properties to a specified percentage of their value, usually around 80%, 90%, or 100%. This prevents underinsurance and ensures that premiums remain fair and equitable. If a property is underinsured, the coinsurance provision may reduce the claim amount in the event of a partial loss, but this does not apply to total losses, as the insurer will typically settle for the insured amount in such cases.

This framework promotes fair handling of claims but does not apply the coinsurance penalty in total loss situations where the entire amount of coverage is triggered. Understanding this distinction is essential for grasping how property insurance functions under the coinsurance clause.