A co-sharing agreement between the insured and the insurer under a health insurance policy which provides that the insured will cover a set percentage of the covered costs after the deductible has been paid. Similar to co-pay insurance plans except co-pays require the insured to pay a set dollar amount at the time the service is rendered.
Co-insurance is arguably one of the most confusing and frequently misunderstood concepts in the world of insurance. Some people think it is a way around paying full price for their insurance. Others think that if they have co-insurance, that the insurance company will never have to pay out the full amount of their loss. The answer to both of these statements would be true, but false.
To understand coinsurance better we need to understand its intention.
“It’s a way to avoid paying full price on insurance” Co-insurance means that the policy is permitted to carry only a percentage, usually 80-90%, of the buildings full replacement value. This is where the illusion of avoiding full price comes from. But of course, as expected, there is a price to be paid for the savings, and that is one of self-insurance in the event of a loss. Self-insurance works similar to that of the deductible concept whereas the policyholder
is responsible for paying for a portion of the loss. The difference is that a deductible is a fixed amout and applies to all losses, where co-insurance is a percentage and varies based on the amount of loss, the replacement value of the building at the time of loss, and the amount of coverage purchased. “The insurance company never pays out the full amount of a claim”
Co-insurance in its simplest definition is a math formula: “Did” divided by “Should” times “Loss”. For example a policyholder owns a building with a replacement value of $500,000. The co-insurance requirement is for 90%.
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