Co-insurance is a term often used in the insurance industry and it can sometimes be confusing. This is because it means different things to different types of policies. Two types of insurance that you often find co-insurance are health insurance and property insurance. Let us examine both in more detail to explain what they mean and how they differ from each other. It is generally expressed as a percentage, as 20%.
For example, say you have health insurance with a deductible of $ 1,500 per year and 20% insurance. In this case, you are responsible for the first $ 1,500 in health care costs for the year (deductible) and 20% of the costs that exceed the deductible (coin insurance). policies like the one described above ($ 1
As your deductible has not yet been reached for the year, you are responsible for 100% of the first $ 1,500 and 20% of the remaining $ 8,500. Your insurance company covers the remaining 80%.
|20% Example of health insurance ($ 1,500 deductible)|
|Your expenses||Insurance expenses|
|First $ 1500 of expenses||$ 1500 (deductible)||$ 0|
|Remaining $ 8500||$ 1700 (20% co-insurance)||$ 6,800|
|Total cost||$ 3,200||$ 6,800|
In property insurance, co-insurance works a little differently. If you have an 80% insurance clause, it does not mean that you are responsible for 80% or even 20% of the damages. This means that your property must be insured for at least 80% of the actual compensation cost, otherwise you will be subject to a reduced payment. This helps insurance companies charge premiums that accurately reflect the risk.
Example of joint insurance for property insurance
Imagine that you own a large stock and insure it on an insurance with an 80% insurance clause. The estimated cost of replacing the inventory is $ 1,000,000. You are experiencing a fire that is causing $ 500,000 in damage.
|Example of 80% property joint insurance ($ 5,000 deductible)|
|Scenario 1||Scenario 2|
|Compensation value of building||$ 1,000,000||$ 1,000,000|
|Requirement for co-insurance  $ 800,000 (1,000,000 * 80% )||800,000 $ (1,000,000 * 80% )|
|Property insured amount||800,000 $  $ 750,000|
|Does the co-insurance clause comply?||Yes||No|
|Loss Amount||$ 500,000||$ 500,000|
|Adjustment of co-insurance||None||.9375 (750,000 / 800,000)|
|Adjusted recoverable loss||500,000||468 750 $ (500,000 * .9375)|
|Deductible||$ 5,000||$ 5,000|
|Paid amount|| $ 495,000 (500,000 – 5,000)  $ 463,750 (468,750 – 5,000)  As you can see, property insurance does not necessarily mean that you will be exposed to a certain percentage of the loss. This means that you should always work with a trusted insurance staff and keep your coverage up to date. Not doing so can be expensive!
If you have any questions about your property or health insurance, please contact us.