Finance term
Coinsurance
Also known as: co-insurance, cost sharing
Definition
Coinsurance is the percentage of a covered cost that you pay after meeting your deductible. In health insurance, an 80/20 plan means the insurer pays 80% and you pay 20% until you hit your out-of-pocket maximum. In property insurance, coinsurance clauses require you to insure your property to a minimum percentage of its replacement value.
Detailed explanation
Health insurance coinsurance is the percentage of an in-network medical bill you pay after your deductible is satisfied. Under the Affordable Care Act, all marketplace plans must include an annual out-of-pocket maximum (2024: $9,450 individual / $18,900 family); once you reach it, the insurer covers 100% of covered services for the rest of the plan year.
Property insurance coinsurance clauses work differently — they are a penalty mechanism, not a cost-sharing percentage. If you insure your building for less than the required percentage of its replacement value (typically 80%), you become a 'co-insurer' for the underinsured portion. A claim will be paid at a reduced amount proportional to how underinsured you are. Example: insuring an $800,000 building at $500,000 (62.5%) against an 80% requirement means the insurer will only pay 78% of any claim (500,000 ÷ 640,000).
Understanding which type of coinsurance applies — cost-sharing or penalty clause — requires reading the specific policy form. The NAIC publishes consumer guides on both health and property policy structures.
◈ Worked example
- After meeting a $1,500 deductible, a patient pays 20% coinsurance on a $5,000 hospital bill — their share is $1,000.
- A commercial property insured at $600k on an $800k building with an 80% coinsurance clause results in a 25% claim penalty for being underinsured.
Common questions
The most-asked questions about Coinsurance — answered straightforwardly.
What's the difference between coinsurance and a copay? +
A copay is a fixed flat amount per service (e.g., $25 per doctor visit). Coinsurance is a percentage split — you pay 20%, the insurer pays 80%. Copays are often charged before meeting the deductible; coinsurance kicks in after.
How do I avoid a coinsurance penalty on my property insurance? +
Insure the building to at least the percentage required by the clause — most commercial policies require 80%, some 90% or 100%. Conduct a replacement-cost appraisal periodically, especially after renovation or inflation in construction costs.
Further reading
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