What Does Deductible & Coinsurance Mean?

Deductible and coinsurance are terms frequently used in the insurance industry. Deductibles are common to many types of insurance products, while coinsurance usually relates to health insurance or dental insurance plans. These terms relate to expenses paid by policyholders based on the levels of protection in their insurance policies.

Deductible Basics

• A deductible is a set amount paid by a policyholder before benefits are paid by the insurance company on a claim. For instance, if you have a $250 hospital emergency deductible as part of your health insurance plan, your provider would typically exclude this amount from its benefits payment and you would owe it to the provider. In car insurance, deductible levels are established when you have comprehensive and collision coverages. If you have a $500 collision deductible, you would pay this amount for car repairs following an accident, and your insurance pays the remainder.

Pros and Cons

• Policyholders usually think of deductible payments only in the negative. However, deductibles serve as part of an important trade-off in your insurance protection. Insurers like deductibles because they not only offset their payout obligations, but they also deter policyholders from using covered services unnecessarily. When you set a higher deductible on a given insurance policy, your premium costs to carry the coverage are typically lower because you are offsetting the insurer's risk. The drawback is that you pay more out-of-pocket on a claim.

Coinsurance Basics

• Coinsurance means that you pay a certain percentage of the balance on covered medical services as outlined by the terms and conditions of your health plan. Coinsurance inclusions are common in medical plans but specific details vary greatly. A given plan may, for instance, have an 80-20 coinsurance for hospital services. In that case, if you use services for which you have coinsurance obligations, you would owe 20 percent of the balance for services, and the insurer would pay the rest. Some plans are straightforward with coinsurance on all medical treatment.

Deductible and Coinsurance

• Many health insurance plans have deductible and coinsurance obligations combined. For instance, you could have a $250 hospital deductible and an 80-20 coinsurance on hospital services. This means that if you go to the hospital in an emergency and are admitted, you would pay the first $250 of the bill and 20 percent of the remaining balance after the deductible is met. As with deductibles, similar health plans with coinsurance typically cost less than plans without coinsurance.