What is co-insurance?

Co-insurance refers to the arrangement in which the insured party is required to pay a certain percentage of their claim after the deductible has been met. This means that, after having paid the initial out-of-pocket cost, the insured will contribute to any remaining expenses based on an agreed-upon ratio, typically outlined in the insurance policy.

In practical terms, for example, if a policy stipulates a co-insurance requirement of 20%, the insured will be responsible for paying 20% of the costs associated with a claim, while the insurance company will cover the remaining 80%. This arrangement incentivizes insured individuals to be mindful of their expenses and can help lower insurance premiums since both parties share the risk.

This concept differs from a policy that covers entire losses or a fixed payment scenario, where the insured's expenses might be fully or largely covered without co-payment. Co-insurance is a critical aspect of many health and property insurance policies, shaping both the risk management strategies of policyholders and the financial architecture of the insurance system.