CoInsurance: Definition
Coinsurance is a tricky term to define because it can mean different things depending on which type of insurance you are talking about. It is most commonly used in health insurance and commonly means the percentage of the total health care bill that you as the insured will have to pay. In other words you are responsible for a portion and the insurance company is responsible for a portion. You are both co-insuring against the cost of health care.
Of course it is not a straight percentage. If you have an 80/20% coinsurance clause in your health insurance policy that means that after your deductible has been met you owe 20% of the bill while the insurer will cover 80%. But then there is an Out-of-Pocket Maximum that limits your liability.
So in a way, Coinsurance is kind of like another deductable tacked on after the fact.
Health Co-Insurance Example:
If you have a Health Insurance Policy with a $1000 deductable, an 80/20% coinsurance clause, and a $3000 out of pocket maximum here are some examples of how much you would be responsible for.
If the total bill is $800.
You would have to pay all of it because it is under the $1000 deductable.
If the total bill is $1800.
You would pay the first $1000 leaving $800 to be covered by insurance. But because of the coinsurance clause you would still have to pay 20% of the $800 or another $160 for a total of $1160. while the insurance company would only cover $640.
If the total bill is $2800.
You would pay the first $1000 leaving $1800 to be covered by insurance. But because of the co-insurance clause you would still have to pay 20% of the $1800 or another $360 for a total of $1360. while the insurance company would cover $1440.
If the total bill is $28000.
You would pay the first $1000 leaving $27000 to be covered by insurance. Because of the co-insurance clause you would still have to pay 20% of the $27000 or another $5400 but because of the out of pocket limit of $3000 you would pay a total of $3000. while the insurance company would cover $25,000.
Coinsurance vs. Copayment
People often confuse the terms copay and coinsurance since both are used frequently in health insurance policies. The copay generally refers to a flat fee that you have to pay when visiting your physician of say $20 or $50 or whatever. Coinsurance is much more expensive because it is based on a percentage of the total bill. See: Group Health Insurance Policies for Ultimate Security
Coinsurance Definition in Property Insurance
In property insurance coinsurance applies when you are under insured based on the value of your property. In other words, if your house is worth more than its insured value and you have a partial loss the insurance company will prorate your settlement reducing the benefits you receive.
Property Coinsurance Example
If your house is worth $325,000 but you only insured it for $250,000 so your house is underinsured by $75,000. 250/325=0.769 or you are only insuring 76.9% of the value of your house. If your insurance policy has an 80% coinsurance clause that would mean that if you had a partial loss on your house the insurance company would only cover part of your claim because you insured less than 80% of the value of your house. If however, your house were only worth $300,000 and you had $250,000 coverage then you are insuring 83.33% of the value and the coinsurance clause does not apply.
In the case of a $50,000 loss in the first case, you would recover $250,000 ÷ (.80 × 325,000) × 50,000 = $48,076 (less any deductible).
Definition of Coinsurance in Title Insurance
Some title insurance policies require that the insured “coinsure” or carry a portion of the liability in a couple of specific cases. The first case is when the value insured under the title insurance policy was less than 80% of the real value of the property when insured. The second case is when you make improvements to the property after the policy is issued which increase the property’s value by 20 percent or more above the amount of the policy.
