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What is Coinsurance?

Mary McMahon
Updated May 16, 2024
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Coinsurance is a type of insurance in which the insurer and the insured split risks with each other. In addition to lowering the cost of insurance for the insured, coinsurance also benefits other people who are insured with the same company, by ensuring that the insurance company will be able to pay all claims. Before purchasing this type of insurance, consumers should make sure that they fully understand the terms, as they can get confusing, and people may find themselves in an awkward situation.

Basically, when someone signs up for a coinsurance policy, he or she insure something at less than its face value. People may do this because they know that a structure or possession can be replaced for less than face value, or because they are willing to pay some out-of-pocket expenses to keep their insurance rates down. If a claim is made on the policy, the insurer pays their share, while the insured is expected to pay any remaining balance.

For example, if someone insures a structure which is worth $100,000 US Dollars (USD) under an 80/20 coinsurance policy, the insurance company agrees to pay $80,000 US in the event that the owner makes a claim on the policy, and the owner will have to make up the difference. However, the person should be careful, because coinsurance clauses are often built into insurance policies. In an insurance policy with a built-in clause, someone might insure that structure for $80,000 USD, thinking that he or she is willing to pay $20,000 USD in the event of a claim, and end up paying $36,000 US, because the insurance policy has an 80/20 coinsurance clause.

Health insurance plans often use coinsurance as well. Typically, this kicks in after the deductible has been paid. If a policy has a $500 USD deductible, once a patient have used the deductible, he or she will be responsible for a set percentage of his or her medical expenses. An 80/20 plan is common for healthcare, although greater and smaller percentages are also possible. Consumers should not confuse coinsurance with a co-pay, in which the patient pays a set amount for each medical visit, not a set percentage.

When used wisely, there are some definite advantages to coinsurance. These plans can save money on insurance premiums, and as long as the person who takes out the policy remembers to set money aside so that it is available in the event of a catastrophe, this type of plan can work out very well. When purchasing any form of insurance, consumers should make sure to ask about coinsurance clauses so that they understand how much the insurance company will pay in the event of a claim.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By anon97211 — On Jul 19, 2010

if husband and wife are working for the same company, with different sums insured, is there any percentage for settling the claim?

By anon81369 — On May 01, 2010

Thanks a lot. All this information helped me a lot.

By anon8476 — On Feb 14, 2008

Remember that co-insurance and co-pay are not the same. On a property policy, co-insurance is a requirement that one insures the property for at least a specific percentage of its value. In your 80/20 example, one with property worth $100,000 must insure it for 80% or $80,000 in order to be fully insured. If the property is insured for less than 80%, the insured will suffer a co-insurance penalty imposed by the insurer. If the property is insured for $600,000, the penalty would be a 25% reduction so the insured would recover 75% of the loss net of any applicable deductible.

By anon6110 — On Dec 16, 2007

thanks a lot, your information helped me a lot.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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