by pavithra » Tue Jul 27, 2010 07:59 am
Basically, when you sign up for a coinsurance policy, you insure something at less than its face value. Insurers may do this because they know that a structure or possession can be replaced for less than face value, or because they are willing to pay some out-of-pocket expenses to keep their insurance rates down. If a claim is made on the policy, the insurer pays their share of the coinsurance while the insured is expected to pay any remaining balance.
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Posted: Tue Jul 27, 2010 08:32 pm Post Subject:
Insurers may do this because they know that a structure or possession can be replaced for less than face value, or because they are willing to pay some out-of-pocket expenses to keep their insurance rates down. If a claim is made on the policy, the insurer pays their share of the coinsurance while the insured is expected to pay any remaining balance.
ALL WRONG! Especially the nonsense about "sign up for a coinsurance policy" -- there is no such thing. Coinsurance is a provision in a property policy that states the minimum percentage of replacement cost that must be carried to avoid a penalty when a claim occurs.
The final statement I have bolded confuses coinsurance in health policies with that of commercial or other property policies, where coinsurance is an entirely different matter.
In a property policy, the typical coinsurance provision requires a policyowner to carry a minimum of 80% of the property's replacement cost as the limit of liability. Has nothing to do with "face value". In a depressed real estate environment, not unlike the present times, a property could have a market value of $1,000,000, but the replacement cost could be $1,500,000. To carry less than $1,200,000 (80% of $1,500,000) would leave the insured exposed to a COINSURANCE PENALTY in the event of a loss of any amount.
The method for determining coverage under the coinsurance provision is simple: What coverage you actually have divided by the minimum amount you were supposed to have equals what you get from the insurance company. Therefore, if the insured carries $800,000 (80% of $1,000,000 using pavithra's 80/20 concept), but the coinsurance requirement is $1,200,000 (80% of $1,500,000), then claims will only be paid at 66-2/3% of the actual loss ($800,000 / $1,200,000 = 66.666667%). If a loss of $100,000 occurs, the insurer will only pay $66,667 (less the deductible), and the insured will have to come up with $33,333 (plus the deductible) to cover the balance of the loss. Had the insured carried $1,200,000 or more, the insurer would pay the entire $100,000 loss (minus the deductible, of course).
A person is not normally "willing to pay [this amount of] out-of-pocket expenses" in order to save a few hundred dollars of premium. But that's what will happen if they fail to carry the required amount of coverage.
Inexperienced agents may actually invite clients to underinsure their property by saying things like, "Our policy comes with a 200% replacement guarantee, so you only have to insure your property for half its value." Unless the policy has a 50% coinsurance provision, the statement is a misrepresentation. But even then, the 200% guarantee could fall short if the actual cost to replace exceeds the coverage.
The whole purpose of the coinsurance provision is to help the policyowner by trying to make sure they are not seriously underinsured.
Posted: Thu Aug 19, 2010 01:34 pm Post Subject:
Coinsurance An arrangement under which the insured person pays a fixed percentage of the cost of medical care after the deductible has been paid. For example, a health plan might pay 80% of the allowable charge, with the enrollee responsible for the remaining 20%; the 20% amount is then referred to as the coinsurance amount.
Coinsurance maximum This is the maximum dollar amount of Covered Expenses for which the Member is responsible in a Calendar Year. After that maximum is reached, this plan will pay 100% of Covered Expenses incurred during the remainder of that Calendar Year.
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Posted: Thu Aug 19, 2010 03:05 pm Post Subject:
There is more than one type of coinsurance in the insurance world.
The coinsuance most people are familar with is the coinsurance used for health insurance and described above by Chuck.
There is an entirely different type of coinsurance that is used in property and casualty property policies. As described by max. This type is primarily used on the commercial lines side of property coverage. It is not normally an issue with personal lines coverage anymore, mainly because most homeowners insurance companies now require that you carry 100% of the replacement value of the property as the dwelling coverage amount on the policy and since the company uses their own replacement cost estimators to determine this value, they agree that the amount of coverage will be an accepatable amount to avoid the coinsurance issue.
Another reason for the coinsurance clause is that policies are priced on the assumption that full or close to full (at least 80% of ) replacement cost coverage is carried on a property. Most claims that are made are not total losses, but are partial losses. If you carried 50% of the replacement cost coverage on a property, your premium would be about 1/2 of full replacement coverage and most of your losses(excluded major and/or total losses) would still be covered without the company receiving the appropriate premium for the exposure. Therefore, for example, if you carry 50% of what you should have carried, they will only pay 50% of any claim you have.
Posted: Fri Aug 27, 2010 04:46 am Post Subject:
It is not normally an issue with personal lines coverage anymore, mainly because most homeowners insurance companies now require that you carry 100% of the replacement value of the property as the dwelling coverage amount on the policy
Even though this is generally an accurate statement, the coinsurance clause has not been removed from the contract (just to protect the insurer from the insured who tries to lower his cost of insurance improperly, as InsuranceDude describes at the end of his post.
Posted: Tue Aug 31, 2010 11:57 am Post Subject:
when you sign up for a coinsurance policy, you insure something at less than its face value. Insurers may do this because they know that a structure or possession can be replaced for less than face value, or because they are willing to pay some out-of-pocket expenses to keep their insurance rates down. If a claim is made on the policy, the insurer pays their share of the coinsurance while the insured is expected to pay any remaining balance.
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Posted: Wed Sep 01, 2010 02:09 am Post Subject:
when you sign up for a coinsurance policy
No one signs up for a coinsurance [property] policy.
Most of Balexio's post describes "coinsurance" in medical insurance, not the coinsurance provision in a property policy.
In a property policy, you are normally required to carry total coverage of at least 80% of the property value. If you fail to carry the minimum coverage required, your claim will be paid at a reduced rate, not 100% of the loss.
The formula is WHAT I HAVE divided by WHAT I NEEDED = WHAT I WILL BE PAID. As an example: Property is valued at $1,000,000. To be covered 100%, I need at least $800,000 coverage. But if I only carry $600,000, my claim will only be paid 75%. 600/800 = 75%. So if my loss is $100,000, I will only be paid for $75,000 of the loss because I only carried 75% of the required minimum amount of coverage, even though I was insured for $600,000 total. If my loss is $800,000 or more, I will only collect the $600,000 limit of liability.
So, Balexio, please re-read the chapter on Property Insurance in your prelicensing textbook, or ask your prelicensing course provider for a refund.
Posted: Wed Sep 01, 2010 02:12 am Post Subject:
OOPS, my bad . . . Balexio must be a spammer, his post is a plagiarism of the first one in the thread. My reply is very similar to my reply to the first post. Because it's correct.
Posted: Thu Sep 16, 2010 12:40 pm Post Subject:
The plan may have a limited number of doctor visits. It will depend on the plans in your state but probably you'll get that number of visits for the $40 co-pay and thereafter you'll pay 40%. You need to check if lab work is covered on the OV co-pay or if you're paying the 40%. You also need to check what the maximum out-of-pocket is for the co-insurance.
Visit a local agent for more information. Do not try to do this over the internet. It takes days to intelligently compare all the plans available if you understand insurance and longer if you don't. Also, if you have any pre-existing conditions that might add a rider to the policy, cause you to be declined, or if you are out of the height and weight guidelines you won't know until you've applied and gone through the underwriting process. The agent can explain the plans; what you get and more importantly, what you don't get. There is no extra charge using an agent and the agent will be there to help get you through underwriting.
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Posted: Wed Sep 22, 2010 12:55 am Post Subject:
Confusing reply, doesn't fit with the discussion of coinsurance in a property policy. HMOs and PPOs generally do not have coinsurance unless one finds himself outside the network.
Commercial health insurance policies of the 80/20 kind still exist, but mostly in group form, and the coinsurance is more likely to be 70/30 these days, in an effort to reduce premiums.
Posted: Sat Nov 20, 2010 02:56 am Post Subject:
Almost all of the non-HSA individual health insurance policies sold in Connecticut have coinsurance and 80/20 is still the most common split.
I guess it differs from state to state.
What is coinsurance?
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