Running your own business is a dream come true. After all your hard work and patience, you took an idea and brought it to life. And now you're the boss! It took a lot of planning, perseverance, and ongoing dedication, but here you are, looking at the big picture questions like cash flow management and business growth, as well as the nitty gritty details like what does coinsurance mean?
To help take at least that worry off your mind, we’re here to explore what is coinsurance, and when you need it.
Importance of Small Business Insurance
Let’s start by taking a look at the importance of small business insurance. As a small business owner, you likely already understand the need for certain types of policies. For example, you know you need general liability insurance for pretty much any line of work from gardening to carpet cleaning, hair cutting, consulting, and just about everything in between.
Other policies you likely have at least considered include property damage coverage, and if you or your employees are driving on the job, commercial auto insurance. There are also lesser known insurance policies like cyber insurance, or inland marine, which despite its name, has nothing to do with a boat.
All of these policies, of course, are designed to do essentially two things. By mitigating the risk of unexpected damages – from accidents, mistakes, or all sorts of other mishaps – they help protect your business financially, and in turn give you peace of mind. This is what makes small business insurance such a good investment.
While you certainly know what the term insurance means, it’s possible that the term coinsurance is new to you. Fair enough, it is certainly less used. So what does what does coinsurance mean? Basically, coinsurance is a type of cost-sharing in insurance, in which the cost of an insurance claim is split between more than one party. That is, usually you and the insurance provider.
What Does Coinsurance after Deductible Mean?
The concept of deductible and coinsurance in healthcare is probably the most common example. That’s because most health insurance policies have a deductible that you need to pay (at least for certain services), and then the insurance kicks in after that. Ideally your insurance would cover the full costs of your treatment. However, not all services are fully covered, so you may instead have what is coinsurance after deductible. In other words, the remaining split of the bill. That’s where coinsurance percentage comes in.
What Is Coinsurance Percentage and What Does It Mean?
Coinsurance percentage is the percentage that you have to pay after your deductible. In health insurance, it can certainly vary between procedures and treatments.
In concrete terms when reading your policy, the percentage generally refers to you. That is, if it says you have 20% coinsurance, you are responsible for paying 20% of the costs after paying your deductible. If it is 40%, then you are responsible for paying 40% of the costs post-deductible. In general, the numbers you should expect to pay in coinsurance in a healthcare policy range from 20% to 60%.
Health insurance is only one example, and perhaps the best known. But what does coinsurance mean for your business?
Well, simply put, pretty much the same thing. That is, a similar formula is used, just to cover different aspects of business. For example, the second most likely place you’ll encounter the concept of coinsurance is in property insurance. In this case it’s usually a clause within your property insurance policy with a punitive nature. How so?
Here it's a bit more complicated. Basically, when you take out property insurance, the policy needs to be for the actual value of your property or an agreed upon percentage of the property's value. Usually people take out insurance for 80%, 90% or 100% of their property value. This is how the insurance company calculates your premiums. If, however, you under-report the value of your property when buying your policy, and then want to file a claim, you will be charged a coinsurance fee. That is, you will have to pay a percentage as detailed in your agreement, essentially as a penalty for under-insuring your property. Your part will be based on the agreed upon formula based on what percentage of your property value you had insured in the first place, and the difference in terms of your property's actual value.
Other Instances of Coinsurance
Coinsurance isn't all that common in other areas of business. In the past coinsurance was sometimes used in title insurance. But likely this doesn’t apply to you at this point, as the concept has been pretty much phased out. Another place you may encounter coinsurance is in what's called employer's liability insurance, though this is far less common than in property and health insurance. And coinsurance may also come up in business income interruption insurance. In this case your coinsurance payment is calculated as a function of how much income will be reimbursed and for how long.
A Few Final Words on Coinsurance and Your Business
So what does coinsurance mean for you and your business at the end of the day? In a nutshell, beyond your personal health insurance and that which you provide for your employees, in all likelihood not much. Sure you should pay attention to your coinsurance and deductibles in purchasing your health insurance policy, and determine the right mix for your needs. Other than that, however, the only other place you'll likely encounter it is in your property insurance policy. Again, read all the clauses so you know what you're getting into here. Even better, make sure to report the actual value of your property. That way you pay the right premiums from the start and the clause doesn't need to be activated.
In fact, that's good advice for any policy you sign. Beyond looking for clauses on coinsurance, make sure to read any policy in full so you know what you're paying for and what you're getting. This means your premiums, your deductibles, your aggregate limits, and of course, how you go about making a claim.