A coinsurance percentage in a credit insurance policy refers to the portion of a covered loss that you, the insured business, are responsible for sharing with the insurer. Here’s how it works:
- How It’s Applied:
- After your deductible: Coinsurance kicks in after you’ve met your deductible amount for a covered loss.
- Percentage Split: The coinsurance percentage (e.g., 10%, 20%) determines the split between how much you pay and how much the insurer pays on the remaining loss amount.
- Example:
- Your policy has a 10% coinsurance clause.
- You’ve met your deductible on a $50,000 loss caused by a customer’s insolvency.
- Your share: You’ll pay 10% of $50,000 = $5,000
- Insurer’s share: They’ll pay the remaining 90% of $50,000 = $45,000
- Purpose of Coinsurance:
- Additional Risk-Sharing: Coinsurance further distributes the risk between you and the insurer beyond the deductible.
- Lower Premiums: Policies with coinsurance clauses usually have lower premiums compared to those without, reflecting the insurer’s reduced risk exposure.
- Considerations:
- Policy-Specific: The exact coinsurance percentage varies between policies.
- Maximum Coverage: Insurers typically have a maximum dollar amount they’ll cover, even with coinsurance.
Key Points:
- Coinsurance is different from a copay, which is a fixed amount paid in health insurance.
- Carefully consider the deductible and coinsurance percentage when selecting a policy. These factors directly impact how much financial protection you have in case of a loss.