Laura Bailey has a plan to buy health insurance. She surveys several health insurance companies and compare the insurance's quotes. She is interested in buying health insurance with co-insurance terms. Later, Bailey choose health insurance company "C" and settle 80/20 split in co-insurance agreement. Beside 80/20 split, Bailey has a $1,000 deductible and a $5,000 out-of-pocket maximum in her co-insurance provision. Bailey need to understand that 80/20 term only apply after she met her deductible for the year. However, something unfortunate happen and she need surgery early in the insurance agreement year that costs $5,500. Since she has not meet the deductible yet. the first $1,000 is not covered by the insurance company. Bailey have to pay $1,000 first and responsible to pay 20% of the remaining cost. And later her insurance company will cover the rest expenses. Here's the calculation:

In the same year, Bailey needs another expensive procedure. Since she already met her deductible, the insurance provision will work right away. The maximum amount she will required to pay for the rest of the year is $3,100 because she already paid a total $1,900 out-of-pocket during the policy term. Her insurance company is responsible for the bill up to Bailey's maximum policy limit.

Irvin Saga own a building with replacement cost valued at $2,000,000 and has an 80% coinsurance clause which means the building insured for at least $1,600,000. However, Mr. Saga decides to purchase a $1,200,000 insurance. As time passes, the building suffer damage from fire that cost $400,000. The insurance company find that the building value is $2,000,000 and being under reporting by Mr. Saga. Insurance company apply penalty which reduces the claim payment. The claim is calculated by dividing the purchased insurance by the supposed amount of insurance. In Mr. Saga case, the claim will be 75% from $1,200,000/$1,600,000. The percentage multiplied by the amount of the loss.

$400,000 x 75% = $300,000

This means Mr. Saga will receive only $300,000 (less any deductible) for the $400,000 claim.

What is coinsurance?

coinsurance is a type of insurance which the insured shared the payment's claim with the insurer. The agreement settle in insurance policy which the insured will pay a certain percentage of the covered cost after the payment of the deductible. Coinsurance could be found in health insurance, property insurance, in title insurance and other insurance. It's commonly used in the U.S insurance market. While in Europe, coinsurance is widely used in European insurance market.

What is deductible?

Deductible is a fix amount you have to pay with your own money before the insurance company pay the claim. Deductible are used to deter huge amount of claims which consumer can be expected to bear the cost reasonably. Health insurance companies often offer insurance plans with high premiums and low deductibles, or insurance plans with low premiums and high deductibles. For example, a company have a premium $1000 a month with $5000 deductible, which means the consumer or insured have to pay $5000 in health treatment cost before the insurance company pays anything. 

Coinsurance in Health Insurance

Coinsurance is sometimes used with copayment in health insurance. The difference is copayment is really fixed while the coinsurance provide a percentage insurer pays after the insurance policy's deductible is exceeded up to the policy's stop loss. The maximum percentage of insured's responsibility is usually under 50%. Once the insured's out-of-pocket expenses equal with the stop loss, the insurer will take 100% responsibility of any additional cost. The percentage can be vary depends on each insurance company. The commonly used percentage are 70-30, 80-20 and 90-10 with stop loss limit ranged between $1000-$3000 after the insurers covers all expenses.

Coinsurance in Property Insurance

Coinsurance can be found in many property insurance policies, such as homeowners, commercial property and so on. Coinsurance in property insurance is a means for insurers to obtain rate and premium equality. Coinsurance in property insurance also could be means as a penalty to the insured by insurance company for under reporting the value of property or business income.