What term is used to describe agreements in property insurance to align insurance risk with the amount of premium charged?

The term that describes agreements in property insurance to align insurance risk with the amount of premium charged is coinsurance. Coinsurance is a provision that requires the policyholder to insure a property for a specified percentage of its value. If the insured amount is less than this percentage at the time of a loss, the insurance company will apply a penalty when settling the claim.

This concept helps ensure that the insurance premium reflects the level of risk associated with the insured property. When the insured amount aligns closely with the actual value of the property, it mitigates the risk of underinsurance, whereby the insured might not receive adequate compensation in the event of a claim. By encouraging adequate coverage, coinsurance aims to protect both the insurer and the insured by promoting fair premium pricing based on the actual risk being underwritten.

In contrast, underinsurance refers to having insufficient coverage, reinsurance involves one insurer transferring risk to another, and excess insurance provides additional coverage beyond a primary policy's limits, none of which directly address the alignment of risk with premium through a conditional coverage requirement like coinsurance does.