Meaning and Working of Coinsurance with Examples

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Every insured must have heard of the term "coinsurance." When you buy or renew insurance, you may have noticed the maximum claim made by the insurance provider. Insurance providers do not offer 100% coverage. They provide the maximum coverage and the rest of the amount necessary to settle the bill that the insured has to pay. The amount remaining after settlement from the insurance provider is called the deductible payable by the policyholder. Also, the maximum coverage offered by the insurance provider is 80% at most insurance companies and varies depending on the provider and the type of policy you have chosen.

Although the concept of coinsurance is very familiar to health insurance holders, it also applies to other types of insurance, such as auto insurance, commercial insurance, property insurance, etc.

Working of Coinsurance

Coinsurance is the amount that the insurance holder will pay after obtaining maximum coverage from the insurance provider. In simple terms, when you claim insurance coverage, you will not get 100% coverage. The insurance provider only offers a fixed percentage of the total amount which is 80% in most insurance companies. The remaining 20% of the deductible will be borne by the insurer. This division of insurance coverage is called coinsurance.

In a practical scenario, the policyholder will first settle the amount of the withholding and then the coinsurance comes into play to settle the remainder of the billed amount.

For example, you have car insurance in the UAE and the repairs will cost AED 3,000. In this case, assuming his coinsurance allowance is 80/20, he will pay 20% i.e. AED 600 of the bill first and then the insurance provider pays 80% of the bill amount i.e. 2400 AED.

In addition to the 20% fee amount, the insured must also pay other expenses that the insurance provider will not cover. Depending on the type of insurance you have, your policy may only cover specific services. The rest that will not be covered by your policy provider must be paid out of pocket.

Is coinsurance and coinsurance the same as health insurance?

Coinsurance and copayment are not the same. Copays are additional costs you pay that are not covered by your insurance coverage plan. For example, if you are visiting a doctor and the insurance company does not cover the consultation fee, you pay it, which is called a Copayment. Whereas, coinsurance is only paid when you claim the insurance coverage. There is no fixed amount in the case of Copayment, while Coinsurance is a fixed percentage that is determined during the purchase of the policy itself. The copayment mainly applies only in the case of health insurance.

Copayment, deductibles will be paid by the policy holder. Every health insurance policy has a maximum out-of-pocket limit. Including deductibles and copays, you are only supposed to pay a fixed amount in Medicare for that year. Once you reach your maximum out-of-pocket limit for that year, your insurance provider will cover you for the rest of the year.

For example, you have a Dh1,000 deductible health insurance policy, a Dh100 copay, and Dh80 / 20 cash insurance up to a maximum of Dh3,000. If you have medical expenses of Dh500, you have to pay for it yourself, but when you receive another Dh5,000 treatment in the same year, then since you paid Dh600 before, you will pay Dh400 to be eligible for coinsurance.

Now that you are done with your deduction, the insurance provider will cover 80% of the AED 4,600 of the AED 3,680 medical expenses and you will pay AED 920 as your share. In total, in that year I paid 1,520 dirhams out of the total bill of 5,600 dirhams.

Coin insurance can be both beneficial and useless for the insured. It totally depends on the claim you make and the coverage of the policy.