What Does Coinsurance Clause Mean?
A coinsurance clause is a provision stating that the insurance company and the insured person will share in the expenses incurred by the insured, in case of health insurance, or the loss based on a fixed percentage of the value of the insured property, in case of a property insurance. Moreover, with property insurance, the insured faces a penalty and must pay more for a loss if they do not insure the property for a certain percentage of its full value. In other words, the insured must also pay for a certain portion of any claim in policies with coinsurance clauses.
Insuranceopedia Explains Coinsurance Clause
The effect and use of a coinsurance clause differ based on the type of policy. In health insurance, once the insured has paid their deductible, they are still responsible for a certain percentage of their medical expenses. For example, with a 20% coinsurance clause, an insured who has already paid the $1,000 deductible for covered health services would still have to pay 20% of future covered services, with the insurer covering the rest of the expenses.
In property insurance, a coinsurance clause requires the insured to pay for some of the loss as well as pay more as a penalty if they do not buy enough coverage for the property as stipulated in the clause. For example, an 80-20 coinsurance clause would require the insured to buy coverage for 80% of a property's total value and pay 20% of any covered losses.
In a directors and officers’ liability insurance, it is a risk sharing technique wherein the insured organization and the directors and officers share in paying for losses.