What does coinsurance involve in an insurance contract?

Coinsurance is a concept in insurance contracts that signifies shared financial responsibility between the insured and the insurer. In a coinsurance arrangement, both parties agree to take on a portion of the risk, which typically means that the insured is responsible for a certain percentage of the loss, while the insurer covers the remainder. This mechanism is often used to encourage the policyholder to maintain adequate coverage and to discourage underinsurance.

For example, in health insurance, coinsurance might work such that after meeting a deductible, the insurer pays a percentage of the covered expenses, while the insured is responsible for the remaining percentage. This shared approach helps to align interests and can lower overall insurance costs by motivating policyholders to manage their claims more judiciously.

The other options do not accurately describe coinsurance. Full payment by the insurer indicates a different structure where the insurer bears all the risk without sharing with the insured. Lower premiums for higher coverage does not pertain to coinsurance but rather to pricing strategies in insurance. Enhanced policy benefits pertain to additional perks or coverage and is not related to the concept of sharing risk in coinsurance.