Money, Health, and Other Things

Educational Blog in the Area of Family and Consumer Sciences for the Middle Peninsula


Risk Management and Insurance Basics, Part III

This week, we’ll return and discuss some common insurance terms.

Two more insurance terms you’ve probably heard a number of times, but may not fully understand, are copayments and coinsurance.

For insurance policies that have copayments, which are most common among health insurance policies, copayments are specific dollar amounts you have to pay each time you use that insurance, for instance, each time you go see a doctor or specialist.

Coinsurance, which is also most common for health insurance policies, is the percentage of any loss that you will be responsible for. For instance, if you have an 80/20 coinsurance, that means you’re responsible for 20% of the cost, after the deductible.

This illustrates one reason that’s it’s still so vital to have money in savings for an emergency, even if you have insurance. Let’s say you have a procedure that costs $11,000 – expensive but you have insurance, so you’re fine, right? If you have a $1,000 deductible, first you have to pay the first $1,000 before your insurance covers any costs. If in addition to that, you have 80/20 coinsurance, now you’re responsible for 20% of the remaining cost, which is $2,000 of the remaining $10,000. Now, even with insurance, you’re responsible for $3,000 of that $11,000 procedure.

To address some of these concerns, many policies will have what’s called a max-out-of-pocket. This is the most an insurance holder will be responsible for. In the last example, if your insurance policy stated a max out-of-pocket of $2,500, once you reach paying that much, your insurance would be responsible for the remaining cost. You can also often lower your deductible and reduce your portion of the coinsurance, but as we discussed last week, at the cost of a higher premium. The balance between risk retention and insuring against risk often comes down to personal preference. However, at minimum, be sure you can afford the monthly or annual premiums within your budget or spending plan, and be sure you have adequate savings to cover the cost of deductibles, copayments, coinsurance, and elimination periods.

Next week, we’ll return and discuss auto insurance.