Coinsurance
Encyclopedia
Co-insurance is an insurance
-related term that describes a splitting or spreading of risk among multiple parties.
between the insurer and the insured. In title insurance
it also means the sharing of risks between two or more title insurance companies.
, coinsurance is sometimes used synonymously with copayment
, but is defined differently – a copay is typically fixed while the coinsurance is a percentage that the insured pays after the insurance policy's deductible
is exceeded up to the policy's stop loss
. It is expressed as a pair of percentages with the insurer's portion stated first. The maximum percentage the insured will be responsible for is generally no more than 50%. Once the insured's out-of-pocket expenses
equal the stop loss the insurer will assume responsibility for 100% of any additional costs. 70-30, 80-20, and 90-10 insurer-insured coinsurance schemes are common, with stop loss limits of $1,000 to $3,000 after which the insurer covers all expenses.
A building actually valued at $1,000,000 has an 80% coinsurance clause but is insured for only $750,000. Since its insured value is less than 80% of its actual value, when it suffers a loss, the insurance payout will be subject to the underreporting penalty. For example: It suffers a $200,000 loss. The insured would recover $750,000 ÷ (.80 × 1,000,000) × 200,000 = $187,500 (less any deductible).
In this example the underreporting penalty would be $12,500.
The most commonly issued coinsurance percentage would be 80% but can be as high as 100%. The latter [100%] would impose the greatest penalty for under reporting. For this reason, it is vital that values of property are accurately reported and updated annually to reflect inflation and other increases in cost.
created between 1987 and late 2006, contain coinsurance clauses. For partial losses, they require the insured carry a percentage of the risk of loss in two circumstances. The first is if the insured did not insure its title for at least 80 percent of its market value at the time the policy was issued. In this case, the insurer will pay only 80 percent of the loss. The second is when improvements constructed on the property after the policy is issued increase the property's value by at least 20 percent above the amount of the policy. In this case, the insurer will pay a percentage of the claim equal to the ratio of 120 percent of the amount of insurance purchased divided by the sum of the amount of insurance and the cost of the improvements.
Coinsurance is also used among U.S. domestic title insurers in a manner similar to that described below for the international insurance market.
In business income interruption insurance, a type of time-element insurance, the coinsurance percent indicates how long the coverage will last, and can range from 50 percent to 125 percent. 50 percent coinsurance allows for 6 months of coverage, compared to 15 months for 125 percent.
between various insurers.
Coinsurance is generally widely used in the European insurance market. In this context, a common insurance contract is used and the risk is shared based on percentages between the insurance companies. Often, one insurance company will lead. When leading the insurance company will be responsible for administering various aspects of the insurance policy, such as premium, any claims and the insurance documents. In this situation, a charge is levied (termed Lead Office commission).
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
-related term that describes a splitting or spreading of risk among multiple parties.
In the United States
In the US insurance market, coinsurance is the joint assumption of riskRisk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
between the insurer and the insured. In title insurance
Title insurance
Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the...
it also means the sharing of risks between two or more title insurance companies.
In health insurance
In health insuranceHealth insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...
, coinsurance is sometimes used synonymously with copayment
Copayment
In the United States, the copayment or copay is a payment defined in the insurance policy and paid by the insured person each time a medical service is accessed. It is technically a form of coinsurance, but is defined differently in health insurance where a coinsurance is a percentage payment after...
, but is defined differently – a copay is typically fixed while the coinsurance is a percentage that the insured pays after the insurance policy's deductible
Deductible
In an insurance policy, the deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses. It is normally quoted as a fixed quantity and is a part of most policies covering losses to the policy holder. The deductible must be paid by the insured,...
is exceeded up to the policy's stop loss
Stop loss policy (insurance)
In health insurance, a stop loss policy is a policy that takes effect after a certain amount has been paid in claims. Companies providing health insurance for their employees through a self-insured plan often subscribe to stop loss policies in order to protect themselves against catastrophic claims...
. It is expressed as a pair of percentages with the insurer's portion stated first. The maximum percentage the insured will be responsible for is generally no more than 50%. Once the insured's out-of-pocket expenses
Out-of-pocket expenses
Out-of-pocket expenses are direct outlays of cash which may or may not be later reimbursed.In operating a vehicle, gasoline, parking fees and tolls are considered out-of-pocket expenses for the trip...
equal the stop loss the insurer will assume responsibility for 100% of any additional costs. 70-30, 80-20, and 90-10 insurer-insured coinsurance schemes are common, with stop loss limits of $1,000 to $3,000 after which the insurer covers all expenses.
In property insurance
Coinsurance is a penalty imposed on the insured by the insurance carrier for under reporting/declaring/insuring the value of tangible property or business income. The penalty is based on a percentage stated within the policy and the amount under reported. As an example:A building actually valued at $1,000,000 has an 80% coinsurance clause but is insured for only $750,000. Since its insured value is less than 80% of its actual value, when it suffers a loss, the insurance payout will be subject to the underreporting penalty. For example: It suffers a $200,000 loss. The insured would recover $750,000 ÷ (.80 × 1,000,000) × 200,000 = $187,500 (less any deductible).
In this example the underreporting penalty would be $12,500.
The most commonly issued coinsurance percentage would be 80% but can be as high as 100%. The latter [100%] would impose the greatest penalty for under reporting. For this reason, it is vital that values of property are accurately reported and updated annually to reflect inflation and other increases in cost.
In title insurance
Owner's title insurance policy forms of the American Land Title AssociationAmerican Land Title Association
The American Land Title Association or ALTA, is a national trade association representing the interests of the abstract of title and title insurance industries...
created between 1987 and late 2006, contain coinsurance clauses. For partial losses, they require the insured carry a percentage of the risk of loss in two circumstances. The first is if the insured did not insure its title for at least 80 percent of its market value at the time the policy was issued. In this case, the insurer will pay only 80 percent of the loss. The second is when improvements constructed on the property after the policy is issued increase the property's value by at least 20 percent above the amount of the policy. In this case, the insurer will pay a percentage of the claim equal to the ratio of 120 percent of the amount of insurance purchased divided by the sum of the amount of insurance and the cost of the improvements.
Coinsurance is also used among U.S. domestic title insurers in a manner similar to that described below for the international insurance market.
In other insurance
In some cases, including employer's liability insurance, coinsurance percent denotes a function analogous to the copay function that it has in health insurance, where the insured covers a certain percentage of the losses up to a certain level.In business income interruption insurance, a type of time-element insurance, the coinsurance percent indicates how long the coverage will last, and can range from 50 percent to 125 percent. 50 percent coinsurance allows for 6 months of coverage, compared to 15 months for 125 percent.
Internationally
In the international insurance market, coinsurance refers to the joint assumption of riskRisk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
between various insurers.
Coinsurance is generally widely used in the European insurance market. In this context, a common insurance contract is used and the risk is shared based on percentages between the insurance companies. Often, one insurance company will lead. When leading the insurance company will be responsible for administering various aspects of the insurance policy, such as premium, any claims and the insurance documents. In this situation, a charge is levied (termed Lead Office commission).