Legal Definitions - coinsurance

Coinsurance is a fundamental concept in insurance that describes a risk-sharing arrangement between you (the insured) and your insurance company (the insurer).

Once you have paid your policy'sdeductible – which is the initial amount you must pay out-of-pocket for covered services before your insurance begins to pay – coinsurance dictates that you will then be responsible for a specific percentage of the remaining covered costs. The insurance company pays the rest of the percentage.

Here are some examples to illustrate how coinsurance works:

• Pet Health Insurance: Imagine you have pet health insurance for your dog. Your policy has a $250 deductible and an 80/20 coinsurance clause. If your dog needs a procedure costing $2,000, you would first pay the $250 deductible. This leaves $1,750 in remaining costs. Under the 80/20 coinsurance, your insurer would then pay 80% of this amount ($1,400), and you would be responsible for the remaining 20% ($350). In total, you would pay $250 (deductible) + $350 (coinsurance) = $600.

  This example demonstrates coinsurance because, after meeting the initial deductible, you, as the insured, are still responsible for a percentage (20%) of the remaining veterinary bill, sharing the financial risk with your insurer.

• Commercial Property Insurance: A small business owner has a commercial property insurance policy for their office building. The policy includes a $1,000 deductible for property damage and a 90/10 coinsurance clause for certain types of repairs. If a pipe bursts and causes $10,000 in damage, the owner would first pay the $1,000 deductible. The remaining covered cost is $9,000. The insurer would then pay 90% of this amount ($8,100), and the business owner would pay the remaining 10% ($900) as coinsurance.

  Here, coinsurance applies after the deductible is met, requiring the business owner to contribute a percentage (10%) of the repair costs, illustrating the shared responsibility for the loss.

• Specialized Medical Treatment: A patient requires a specialized outpatient therapy that costs $5,000. Their health insurance policy has a $500 annual deductible and a 75/25 coinsurance for this type of treatment. Assuming they haven't met their deductible yet, the patient first pays the $500 deductible. This leaves $4,500 in costs. The insurer then covers 75% of this amount ($3,375), and the patient is responsible for the remaining 25% ($1,125) as coinsurance.

  This scenario clearly shows coinsurance in action: once the deductible is satisfied, the patient continues to bear a portion (25%) of the treatment's cost, rather than the insurer covering 100% of the remaining balance.