Certified Financial Consultant (CFC) Practice Exam

What term refers to the provision that facilitates the sharing of expenses between the insured and the insurance provider?

1. Deductible

2. Coinsurance

3. Copayment

4. Out-of-pocket maximum

The correct answer is: Coinsurance

The term that refers to the provision facilitating the sharing of expenses between the insured and the insurance provider is coinsurance. In a coinsurance agreement, both the insured individual and the insurance company share the costs of covered expenses after the deductible has been met. This means that the insured will pay a certain percentage of the costs while the insurance provider pays the remainder. For example, if a health insurance plan includes a coinsurance rate of 20%, the insured would pay 20% of eligible expenses, while the insurance provider covers the remaining 80%. This arrangement incentivizes both parties to manage healthcare costs responsibly. Understanding coinsurance is crucial for individuals because it affects how much they will need to budget for healthcare expenses beyond their premiums and deductibles. It is an essential component in health insurance that helps distribute the financial risks associated with medical costs. In contrast, other terms like deductible refer to the amount the insured must pay out-of-pocket before the insurance coverage kicks in, copayment typically denotes a fixed dollar amount paid for particular services at the time of care, and out-of-pocket maximum signifies the total cap on expenses that the insured will have to pay in a policy year before the insurance covers 100% of further costs. Each of these plays a distinct