Coinsurance is an insurance term that signifies the sharing of risk between two or more parties. It typically refers to a type of medical insurance or property insurance. In these types of insurance contracts, the insured agrees to pay a certain percentage of the costs of services (medical or otherwise) in exchange for a lower policy premium.
How Does Coinsurance Work?
With coinsurance, the insured agrees to pay a percentage (usually between 25% and 50%) of the total cost of the medical or property service for which they are insured. The policy purchaser is responsible for paying the remaining percentage, which is typically the amount after the deductible has been paid.
For example, if a business buys a property insurance plan with coinsurance and a $500 deductible, they may be liable for 25% of the total cost of the property service after the deductible has been paid. In this example, the business would be liable for 25% of $500, which would be $125.
What Are the Benefits of Coinsurance?
Using coinsurance can help businesses reduce the amount they have to pay for their insurance premiums. By agreeing to pay a certain percentage of the services for which they are insured, businesses can save money on their insurance policy premiums. Additionally, coinsurance also helps spread the risk across multiple parties, meaning that no single party has to bear the entire financial burden for a particular service.
Who Should Consider Coinsurance?
Coinsurance can be beneficial to businesses that need to cover a variety of services. Businesses that are concerned about reducing the amount they pay for policy premiums and want to spread the financial risk among multiple parties should consider coinsurance. Coinsurance can also be the right choice for businesses that anticipate high costs for services due to their size or level of risk.