Certified Financial Consultant (CFC) Practice Exam

What is a critical feature of coinsurance in insurance policies?

1. It simplifies billing procedures

2. It reduces the cost for the insured

3. It requires the insured to share in the cost of a claim

4. It eliminates the need for deductibles

The correct answer is: It requires the insured to share in the cost of a claim

Coinsurance is a critical feature of insurance policies because it establishes a shared responsibility between the insurer and the insured for the cost of a claim. This means that in the event of a loss, the insured pays a specified percentage of the covered expenses, while the insurer pays the remainder. This arrangement not only encourages policyholders to be more mindful of the costs associated with claims but also helps to mitigate the risk for insurance companies by ensuring that insured individuals have a stake in the financial aspect of their claims. By requiring the insured to cover a portion of the costs, coinsurance serves to promote responsible decision-making regarding healthcare usage or property repairs, thereby minimizing avoidable or excessive claims. This can help keep insurance premiums lower in the long run, as it discourages unnecessary claims and helps balance the insurance pool. In this way, coinsurance plays a vital role in maintaining the sustainability of insurance programs.