Coinsurance Clause

What Does Coinsurance Clause Mean?

A coinsurance clause is a provision in an insurance policy stating that both the insurance company and the insured will share in the expenses incurred by the insured. In health insurance, this involves the insured paying a portion of medical expenses. In property insurance, the loss is shared based on a fixed percentage of the property’s value. Additionally, in property insurance, if the insured does not cover the property for a specified percentage of its full value, they may face a penalty and be required to pay more for a loss. Essentially, the insured must bear a portion of any claim under policies with coinsurance clauses.

Insuranceopedia Explains Coinsurance Clause

The effect and use of a coinsurance clause vary depending on the type of policy. In health insurance, after the insured has met their deductible, they are still responsible for a percentage of their medical expenses. For instance, with a 20% coinsurance clause, after paying a $1,000 deductible, the insured would still be required to cover 20% of future medical expenses, while the insurer pays the remaining 80%.

In property insurance, a coinsurance clause not only requires the insured to pay a portion of the loss but also imposes a penalty if the property is not insured to the required value. For example, under an 80-20 coinsurance clause, the insured must purchase coverage for at least 80% of the property’s value and is responsible for 20% of any covered losses.

In directors and officers (D&O) liability insurance, a coinsurance clause functions as a risk-sharing mechanism where both the insured organization and its directors and officers share the cost of paying for covered losses.