What is Coinsurance?

Insurance can help create financial safety, but it’s a two-way street, meaning the insured and insurer share the cost. One way that works is through coinsurance – the amount that must be paid towards a claim after the deductible is covered. Both health insurance and property insurance usually have coinsurance requirements, but the terms may be different.

What is Coinsurance?

With coinsurance, you’re sharing the cost with an insurance company and they usually pay the larger chunk. The common percentage split is usually 80/20 with the insured paying the smaller percentage.

Coinsurance usually kicks in after a deductible has been paid. Deductible is the amount the insured has to pay out of pocket before the insurance provider shares the cost of healthcare with them via coinsurance.

As an example, if you visit the doctor and have to pay $150 for the visit, assuming you’ve hit your deductible, you might pay 20% in coinsurance, which is $30. If you haven’t yet met your deductible, you’d end up paying the entire $150.

Another factor that impacts how much coinsurance you pay is your out-of-pocket max. That is the maximum amount you have to pay out of pocket in a year. Let’s say your out-of-pocket maximum is $4,500. Once you spend that amount ($4,500) on both your deductible , copays, and coinsurance, you don’t pay anything else out of pocket and the insurance covers the 100% of your healthcare expenses for the remainder of the year.

Waiver of Coinsurance

It’s sometimes possible to do a waiver of coinsurance, which can reduce or eliminate coinsurance altogether through a waiver of coinsurance. Insurance companies will typically waive coinsurance for small claims. Certain requirements must be met such as having a certain amount in coverage or even having a loss prevention program in place if it’s a business seeking coverage.

Keep in mind that insurance policies with coinsurance waiver clauses may have higher premiums because the insurance company is taking on more risk. The higher premiums may be worthwhile if the policyholder is facing a potentially high claim.

Property Coinsurance

As mentioned earlier, coinsurance can apply to real estate as well as healthcare. Property insurance usually has a coinsurance clause within the policy.

With property coinsurance, a percentage of the cash or replacement value of a property policy has to be insured. The property owner usually has to have 80% property insurance coverage before they can get a full reimbursement on claims. In some cases the percentage may be higher. If someone insures their property for less than that amount, it can lead to a coinsurance penalty when a claim is filed, reducing the claim payment. For this reason it’s imperative to insure the property properly to avoid having to pay robust out-of-pocket costs when you could have gotten a full reimbursement.

Coinsurance vs copay

A coinsurance is similar to a copay. The main difference is that while copays are a dollar amount, coinsurance is a percentage. Also, coinsurance kicks in after the insured reaches their deductible, whereas copays can apply both before and after the insured reaches their deductible.