What is Coinsurance?

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.