# Coinsurance: Definition, How It Works, and Example

> **Definition**
>
> Coinsurance is the amount an insured party must pay for claims after exceeding their deductible.

## What Is Coinsurance?

Coinsurance is the amount, generally expressed as a fixed percentage, that an insured must pay toward a covered claim after the deductible is satisfied. It is common in health insurance. Some property insurance policies also contain coinsurance provisions. In this case, coinsurance is the amount of coverage the property owner must purchase for a structure.

### Key Takeaways

*   Coinsurance is the percentage under an insurance plan that the insured person pays toward a covered expense or service.
*   Coinsurance kicks in after the policy deductible is satisfied.
*   One of the most common coinsurance breakdowns is the 80/20 split: The insurer pays 80%, the insured 20%.
*   Copays require the insured to pay a set dollar amount at the time of the service.
*   The coinsurance clause in a property insurance policy requires that a home be insured for a percentage of its total cash or replacement value.

![Coinsurance](https://www.investopedia.com/thmb/teeH5AxW6jwouIUGARUkJ0vFHoQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/coinsurance.asp-final-a6eb8e55b439414bb5a4e961738735f4.jpg)

*— Investopedia / Eliana Rodgers*

## How Coinsurance Works

A coinsurance provision is [similar to a copayment](https://www.investopedia.com/articles/insurance/120816/coinsurance-vs-copay-why-you-need-know-difference.asp#), or "copay," provision, except that copays require the insured to pay a set dollar amount at the time of the service, and coinsurance is a percentage amount.

One of the most common coinsurance breakdowns is the 80/20 split. Under an 80/20 coinsurance plan, the insured is billed for 20% of medical costs, while the insurer pays the remaining 80%.

However, these terms only apply after the insured has reached the policy's out-of-pocket [deductible](https://www.investopedia.com/health-insurance-deductible-4773113) amount. Also, most health insurance policies include an [out-of-pocket maximum,](https://www.investopedia.com/terms/o/outofpocket-limit.asp) which limits how much you have to pay in deductibles, copayments, and coinsurance for in-network care and services. After that, the plan pays 100% of the costs for covered benefits.

> **Fast Fact**
>
> Generally speaking, plans with low monthly premiums have higher coinsurance, and plans with higher monthly premiums have lower coinsurance.

## Example of Coinsurance

Here's how it typically works: Assume you take out a health insurance policy with an 80/20 coinsurance provision, a $1,000 out-of-pocket deductible, and a $5,000 out-of-pocket maximum. Unfortunately, you require outpatient surgery early in the year, which costs $5,500. Because the surgery is in-network and you have not yet met your deductible, you must pay the first $1,000 of the bill. After meeting your $1,000 deductible, you are only responsible for 20% of the remaining $4,500, or $900. Your insurance company will cover 80% of the remaining balance.

If you require another expensive procedure later in the year, your coinsurance provision takes effect immediately because you have previously met your annual deductible. Also, because you have already paid a total of $1,900 out-of-pocket during the policy term, the maximum amount you will be required to pay for services for the rest of the year is $3,100. Note that monthly premiums and out-of-network costs do not count toward the out-of-pocket maximum.

After you reach the $5,000 [out-of-pocket](https://www.investopedia.com/terms/o/outofpocket.asp) maximum, your insurance company will cover 100% of the costs for in-network covered services for the rest of the year.

## Copay vs. Coinsurance

Both copays and coinsurance provisions are ways for insurance companies to spread risk among those they insure. However, [both have advantages and disadvantages for consumers](https://www.investopedia.com/articles/insurance/120816/coinsurance-vs-copay-why-you-need-know-difference.asp).

### Pros and Cons of Coinsurance

Because coinsurance policies require deductibles before the insurer bears any cost, policyholders absorb more costs upfront. On the other hand, it is also more likely that the out-of-pocket maximum will be reached earlier in the year, resulting in the insurance company incurring all costs for the remainder of the policy term.

### Pros and Cons of Copays

A copay plan charges the insured a set amount at the time of each service. Copay plans spread the cost of care over a full year and make it easier to predict medical expenses.

The size of the copays varies depending on the type of service you receive. For example, a visit to a primary care physician may have a $20 copay, whereas an emergency room visit may have a $100 copay. Other services, such as preventative care and screenings, may carry full payment without a copayment. A copay policy will likely result in an insured paying for each medical visit.

## Property Insurance Coinsurance

The [coinsurance clause](https://www.investopedia.com/terms/c/coinsurance-formula.asp) in a [property insurance](https://www.investopedia.com/terms/p/property-insurance.asp) policy requires that a home (or other physical property) be insured for a percentage of its total cash or replacement value. Usually, this percentage is 80%, but different providers may require varying percentages of coverage (90%, 70%, etc.).

For example, if a property is valued at $200,000 and the insurance provider requires an 80% coinsurance, the homeowner must have $160,000 of property insurance coverage if they want full reimbursement on any claims.

If a structure is not insured to this level and the owner should file a claim for a covered [peril](https://www.investopedia.com/ask/answers/090815/what-difference-between-peril-and-hazard.asp), the provider may impose a coinsurance penalty on the owner. In other words, the policyholder must hold a high enough insurance limit to cover a percentage of the property value to receive full compensation if there is a loss or damage to the property.

### Waiver of Coinsurance

Policyholders may include a [waiver of coinsurance](https://www.investopedia.com/terms/w/waiver-of-coinsurance-clause.asp) clause in policies, which is commonly found in property insurance but can also apply to health insurance.  A waiver of coinsurance clause relinquishes the policyholder's requirement to pay coinsurance. Generally, insurance companies tend to waive coinsurance only in the event of relatively small claims. In some cases, however, policies may include a waiver of coinsurance in the event of a total loss.

## What Does 30% Coinsurance Mean?

Coinsurance is an insured individual's share of the costs of a covered expense (it usually applies to healthcare insurance). It is expressed as a percentage. If you have a "30% coinsurance" policy, you are responsible for 30% of your medical bill. Your health plan pays the remaining 70%.

## Is Coinsurance the Same As Copay?

Though both represent an out-of-pocket expense for you, the insured person, [coinsurance is not the same as copay](https://www.investopedia.com/articles/insurance/120816/coinsurance-vs-copay-why-you-need-know-difference.asp). A copay is a set figure you're charged for prescriptions, doctor visits, and other types of health care, generally at the time of service. Your copay applies even if you haven't met your deductible yet. Coinsurance is the percentage of the costs of the services and treatment you're responsible for after you've met your health plan's overall deductible.

## Is Coinsurance or a Copay Better?

Both coinsurance and copay have their pros and cons. Because you pay a set amount at the time of each service or purchase, copay plans make it easier to anticipate your healthcare expenses. You'll always pay the copay, regardless of whether you've met your deductible or not. Coinsurance only kicks in after your deductible has been met. On the other hand, once it starts applying, coinsurance may mean lower [outlays](https://www.investopedia.com/terms/o/outlaycost.asp) overall. Also, coinsurance goes toward meeting your policy's out-of-pocket maximums.

## The Bottom Line

Coinsurance is the amount an insured must pay against a health insurance claim after their deductible is satisfied. It also applies to the level of property insurance that an owner must buy on a structure to cover claims.

Coinsurance differs from a copay in that a copay is generally a set dollar amount that an insured must pay at the time of each service. Both copays and coinsurance provisions are ways for insurance companies to spread risk among the people they insure. Both have advantages and disadvantages for consumers.  

> **Article Sources**
>
> 1.  FutureWise. "[80/20 Health Insurance. Coinsurance Plans Explained](https://futurewiseinsurance.com/80-20-health-insurance-co-insurance-plans-explained/)."
>     
> 2.  Health Insurance Marketplace. "[Copayment](https://www.healthcare.gov/glossary/co-payment/)."
>     
> 3.  Health Insurance Marketplace. "[Out-of-Pocket Maximum/limit](https://www.healthcare.gov/glossary/out-of-pocket-maximum-limit/)."
>     
> 4.  PeopleKeep. "[What is the difference between coinsurance and a copayment?](https://www.peoplekeep.com/blog/what-is-coinsurance)"
>     
> 5.  eHealth. "[Understanding Copayments in Healthcare.](https://www.ehealthinsurance.com/resources/small-business/understanding-health-insurance-copayment)"
>     
> 6.  Independent Insurance Agents & Brokers of America. "[Back to Basics - What is Coinsurance and How Do I Describe it to My Clients?](https://www.independentagent.com/vu/Insurance/Personal-Lines/Miscellaneous/GermondWhatisCoinsurance.aspx)"
>     
> 7.  International Risk Management Institute. “[Property Insurance: Coinsurance](https://www.irmi.com/articles/expert-commentary/property-insurance-coinsurance).”
>     
> 8.  NAIOP. "[Coinsurance: The Misunderstood Property Insurance Pitfall](https://www.naiop.org/research-and-publications/magazine/2019/summer-2019/perspectives/coinsurance-the-misunderstood-property-insurance-pitfall/)."