What does the term coinsurance refer to in an insurance policy?

Coinsurance in an insurance policy refers to the concept where the insured is responsible for a certain percentage of the covered expenses after any applicable deductible has been met. This means that once the deductible is paid, the insured will share in the costs of a claim, paying a pre-defined percentage of any additional amounts. For example, if a policy has an 80/20 coinsurance clause, the insurer pays 80% of the covered expenses while the insured must pay the remaining 20%.

This mechanism encourages policyholders to be more cost-conscious since they are financially invested in the claim and helps insurers manage risk by sharing costs with the insured. It is important to understand the implications of coinsurance, especially as it can affect the total amount an insured has to pay in the event of a loss, making it a critical aspect of many insurance policies.