Corporate Finance & Accounting

Waiver of coinsurance clause

What is a waiver of coinsurance provisions?

A waiver of coinsurance is a clause in an insurance contract that states that under certain conditions, the insurer will not require the policyholder to pay coinsurance or a percentage of the total claim.

These clauses are most commonly found in property insurance, but also apply to health insurance and, in rare cases, other types of insurance.

key takeaways

  • Waiver of coinsurance refers to language in an insurance policy that states the conditions under which policyholders do not have to pay part of a claim.
  • These terms may apply to property insurance, health insurance or other types of insurance.
  • Policies that waive coinsurance clauses tend to have higher premiums.

How Coinsurance Waiver Works

An individual or business with property insurance may only get 80% coverage, which means they pay the remaining 20% ​​coinsurance if something happens to their property and they qualify for a valid claim. The waiver of the coinsurance clause waives the requirement for policyholders to share the burden and pay a portion of the cost out of pocket.

Generally, insurers tend to waive coinsurance only for fairly small claims. That said, in some cases, the policy may also include a waiver of coinsurance in the event of a total loss.

The exact language insurance companies use when they write a coinsurance waiver can vary, although they are all similar in theory. Often, consumers can expect to pay higher premiums for policies that waive coinsurance clauses, as this creates greater liability for the insurer.

important

Insurance companies usually waive coinsurance only for fairly small claims.

Example of Waiver of Coinsurance Clause

Waiving coinsurance clauses is especially valuable to policyholders in the event of a total loss. Assume that coinsurance terms require policyholders to insure at least 80% of the property’s actual value. Therefore, if the building is worth $200,000, the owner should purchase insurance for at least $160,000.

In the event of a total loss, the policy will pay $160,000 and the building owner will be responsible for the remaining $40,000. Of course, that would change if the policy included a waiver of the coinsurance clause, in which case the insurance company would cover the full $200,000 bill.

special attention items

As mentioned earlier, waiving coinsurance provisions can sometimes apply to health insurance and sometimes other types of insurance products.

Some health insurance policies are 80/20 plans, which means the insured is responsible for 20% of medical bills and the insurance company pays the remaining 80%—provided the customer pays the deductible.

In the rare case where a coinsurance clause applies, it will eliminate the 20% payment required by the insured under certain circumstances. In other words, if a patient needs an $80,000 procedure, forgoing coinsurance covering that procedure will exempt the patient from paying the $16,000 coinsurance.

However, like property insurance, coinsurance waivers in health care typically cover much smaller amounts. They often come into play when patients pay up front for specific, relatively inexpensive services at delivery.

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