What kind of risks does "coinsurance" typically distribute between?

Coinsurance is a risk-sharing arrangement typically seen in health insurance and property insurance policies. In this context, it is designed to distribute certain risks between the policyholder and the insurance company. The policyholder agrees to take on a specified percentage of costs, often after a deductible has been paid, while the insurance company covers the remaining percentage. This arrangement encourages the policyholder to be more mindful of the costs of care or service because they are responsible for a part of the expenses.

This distribution of risk serves multiple purposes: it aligns the interests of both parties in managing costs effectively, discourages over-utilization of services, and ensures that the insurer does not bear the entire financial burden of claims. Coinsurance typically has specified terms outlining the sharing of costs, providing clarity on the financial responsibilities of both the policyholder and the insurer, thereby facilitating a balanced risk management strategy.