What is the effect of a 'co-insurance clause' in a property policy?

A co-insurance clause in a property policy serves to encourage policyholders to insure their property for an appropriate value relative to its total value. The primary effect of such a clause is that it can lead to a reduction in the amount payable for losses if the insured value is below a specified percentage of the property's actual value, commonly set at 80% or higher.

When a policy includes a co-insurance clause, if the insured does not carry insurance equal to that required percentage of the property's value, they may not receive the full amount of their claim after a loss. Instead, the insurer calculates the claim payout based on the degree to which the insured value falls short of the necessary coverage. This means that underinsurance can lead to a penalty in the form of reduced compensation for any claim, which aligns with the reasoning behind the answer provided.

The other options relate to concepts that are not directly tied to the function of a co-insurance clause, such as guaranteed full payment, premium adjustments for risk, or provisions for additional coverage, all of which do not accurately describe the implications of having a co-insurance clause in a property insurance policy.