Coinsurance: Definition, How It Works, and Example

Insurance policies can be intricate, and among the various terms and concepts, coinsurance stands out as a crucial element, particularly in health and property insurance. In this article, we will delve into the intricacies of coinsurance, its application, and how it differs from related concepts such as copay. (Coinsurance meaning in insurance.)

Coinsurance Explained

Coinsurance, often expressed as a fixed percentage, is the amount an insured individual must contribute towards a covered claim after the deductible is satisfied. This concept is prevalent in health insurance, where policyholders share the financial responsibility with the insurer. It is worth noting that coinsurance can also be found in some property insurance policies, dictating the coverage amount a property owner must secure for a structure.

Key Components of Coinsurance:

  1. Coinsurance Percentage:
    • Coinsurance is represented as a percentage under an insurance plan, determining the portion the insured pays for a covered expense or service.
  2. Triggered After Deductible:
    • Coinsurance comes into play after the policyholder has satisfied the deductible, which is the amount the insured must pay out of pocket before the insurance coverage kicks in.
  3. Common Split: 80/20:
    • A prevalent coinsurance breakdown is the 80/20 split, where the insurer covers 80%, and the insured is responsible for the remaining 20% of covered expenses.
  4. Comparison with Copay:
    • Distinct from copayment (copay), which is a fixed dollar amount paid at the time of service, coinsurance is a percentage-based payment.
  5. Property Insurance Coinsurance:
    • In property insurance, the coinsurance clause mandates that the property owner insures the property for a percentage of its total cash or replacement value.
  6. Out-of-Pocket Maximum:
    • Most health insurance policies include an out-of-pocket maximum, capping the total amount the insured pays for covered care within a specific period.

How Coinsurance Works:

To understand how coinsurance operates, consider an 80/20 coinsurance plan with a $1,000 deductible and a $5,000 out-of-pocket maximum. If a medical procedure costs $5,500 early in the year, the insured pays the initial $1,000. After meeting the deductible, they are responsible for 20% of the remaining $4,500 ($900), while the insurer covers the remaining 80%.

Once the out-of-pocket maximum is reached, the insurer assumes responsibility for the costs, up to the maximum policy limit.

Coinsurance in Property Insurance:

The coinsurance clause in property insurance mandates coverage for a percentage of the property’s total value. For instance, if a property valued at $200,000 requires 80% coinsurance, the homeowner must have $160,000 in property insurance coverage for full reimbursement on claims.

Waiver of Coinsurance:

Some policies may include a waiver of coinsurance, relieving the homeowner of the coinsurance requirement, especially for smaller claims or in the event of a total loss.

Comparing Coinsurance and Copay:

Both coinsurance and copay spread risk among insured individuals, but they have distinct advantages and disadvantages for consumers. Copays involve a set amount at each service, making it easier to predict healthcare expenses. Coinsurance, while requiring deductibles upfront, may result in lower overall costs once activated.

Understanding “30% Coinsurance”:

If a policy states “30% coinsurance,” it means the insured is responsible for 30% of covered expenses, with the health plan covering the remaining 70%.

Coinsurance vs. Copay: Which is Better?

The choice between coinsurance and copay depends on individual preferences and circumstances. Copays offer predictability in expenses, while coinsurance may lead to lower overall costs after the deductible is met.


In conclusion, coinsurance plays a pivotal role in insurance policies, sharing the financial burden between the insured and the insurer. Whether in health or property insurance, understanding coinsurance is essential for making informed decisions about coverage and managing out-of-pocket expenses.

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