Question

Which of the following is true of coinsurance?

a. It is rarely found in property insurance policies.
b. It allows the insured to pay an extra premium initially in exchange for a guaranteed option to buy more insurance at certain specified times later.
c. It excuses the insured from paying premiums if he or she becomes disabled.
d. It is a provision under which the insurer and the insured share costs, after the deductible is met, according to a specific formula.

Answer 1

Coinsurance is a mechanism where the insured and insurer share the cost of insurance claims after the deductible is met. It is commonly found in different types of insurance policies and serves to reduce moral hazard.

Step-by-step explanation:

The correct answer to which of the following is true of coinsurance is option d. Coinsurance is a provision under which the insurer and the insured share costs, after the deductible is met, according to a specific formula. This cost-sharing measure helps reduce moral hazard by ensuring that the insured party bears some of the costs and thereby discourages overutilization of insurance benefits. Coinsurance is quite common in various types of insurance policies, including health and property insurance, where the policyholder is responsible for a certain percentage of the costs, such as 20%, and the insurance company pays the remainder, such as 80%, after the deductible has been satisfied.