All of the following statements concerning coinsurance are true EXCEPT?

The statement about the coinsurance formula being applied to total losses is not accurate because coinsurance provisions generally apply to partial losses rather than total losses. Coinsurance is a method used in property insurance to encourage policyholders to insure their properties for an adequate value. It typically requires the insured to carry a specified percentage of the property’s value, which is often set at 80%, 90%, or 100%.

When a claim arises and the insured property’s value is underinsured, the coinsurance clause may penalize the insured by reducing the amount of the claim payments in proportion to the shortfall in coverage. Therefore, if the property is fully destroyed, the coinsurance clause does not come into play because the entire policy limit would generally apply to cover the loss, regardless of the percentage of coverage maintained.

This clarification reinforces why the coinsurance formula is relevant primarily when evaluating partial losses, while total losses are typically settled at the policy limits.