Definition of a Co-insurance Insurance Policy

When choosing a medical or property insurance policy, it is important to understand all of the terminology the insurance company is throwing at the potential customer. However, sometimes it can feel like the person needs a dictionary just to decipher all of the jargon. One of the most prominent terms that a person comes across is that of co-insurance. The amount of co-insurance that a person chooses will affect his monthly premium payments and his out-of-pocket expenses following an event that causes damages to himself or his property.

Co-insurance vs. Co-payment

• Co-insurance and co-payment are very similar concepts. Co-insurance is generally stated as a percentage, whereas a co-payment is typically stated as a set dollar amount. For example, an 80/20 co-insurance policy means that the insurer covers 80 percent of any losses incurred, and the insured covers 20 percent. However, if a person has a $30 co-payment, he generally pays this upfront for medical treatment, with the insurance company covering the remainder. Co-insurance is usually more prominent with long hospital stays, emergency room visits and dental treatments. Co-payments are typically payable upon visiting a person's regular physician.

Effect on Premiums

• The monthly premium that the policy owner must pay is dependent upon the amount of co-insurance that he selects when he chooses his policy. For example, a person who chooses a policy with 80/20 co-insurance coverage will typically have a monthly premium that is less than a person who chooses the exact same policy except with 90/10 co-insurance coverage. The reason is simply that the insurance company carries a greater risk, and pays more for damages, with the second policy.

Co-insurance Clause

• Many insurance policies carry a co-insurance clause that requires the insured carry a minimum amount of coverage on a property. For example, with fire insurance most companies require that a business carry a policy that covers at least 80 percent of the full market value of the building. If the insured fails to carry the minimum amount, usually resulting from an under-estimation of the market value of property, he must pay more out of pocket than originally stated in the contract.

Deductible vs. Co-insurance

• Another common term with insurance policies is the word "deductible." A deductible is an amount the insured agrees to pay in any given year and which the insurer deducts from the payout if the insured has not met the limit through co-insurance or co-payments. For example, if Jill has a high-deductible medical plan with a $10,000, but she has only paid $4,000 in co-payments and co-insurance, the insurance company will deduct $6,000 upon the occurrence of an event requiring a large payout.