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What is Coinsurance?

Coinsurance is a type of insurance plan that splits or spreads risk across multiple parties. There are three main types of coinsurance:

Coinsurance vs Copays

Coinsurance plans usually have deductibles like any other insurance plan. For example, if you have a deductible of $1,500, you pay 100 percent out of pocket until the $1,500 is paid. Once the deductible is met you would share the cost with your plan by paying a percentage of the remaining cost. If your coinsurance is 20 percent of a $3,000 bill with a $1,500 deductible, you are responsible for an additional $300 after your deductible is met. Your plan would pay the remaining $1,200.

A copay is a fixed amount paid for healthcare, usually at the time of service. The amount varies depending on the type of service you receive. For example, a doctor’s office copay may be $20-$50, while you may pay $100-$250 or more for an emergency room visit. Copays are generally cheaper than coinsurance since they are a fixed amount instead of a percentage.

When deciding which insurance plan to go with, consider your options. Choosing a plan that offers coinsurance will be mean lower monthly payments, but you’ll pay more in the event of a claim.

Property Coinsurance

In property insurance, coinsurance is a penalty imposed on the insured by insurance company for under insuring the value of the home or property. The penalty is based on a percentage that is written into the policy.  The most common percentage is 80 percent but it can be as high as 100 percent.  For partial losses, the insurance company requires the insured to carry a percentage of the risk. If the insurance buyer only insures 80 percent of the property, then the insurer would only pay 80 percent of the total loss. Property coinsurance allows insurers to get better rates and premiums. Property insurers must have a base to which they apply expected losses. The base comes from past loss experience over an entire underwriting book.

Title Coinsurance

American Land Title Association policies created between 1987 and 2006 contain coinsurance clauses for title insurance. In some cases, an insurance underwriter can only insure a property for a certain amount of money. When this happens, an individual can have two underwriters proportionally insure a transaction through separate title polices.

The amount of risk is shared between the two policies. For example, if you need a policy for $10,000 but each underwriter’s limit was $5,000, the companies would issue separate policies each for $5,000. Therefore, each underwriter would commit to paying 50 percent of any claims on the policies. However, the policies do not have to be equal amounts. One underwriter can take on more liability than the other but would in turn be responsible for a higher percentage of the payout in the event claims were made against the policy.

Bottom Line

Coinsurance is used to lower premiums and split costs between two or more parties in healthcare, property financing, and for land titles. Make sure you understand which portion is your responsibility before signing an insurance contract with a coinsurance clause.

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