An insured has a stop-loss limit of $10,000, a deductible of $500, and an 80%/20% coinsurance. The insured incurs $50,000 of covered losses in an accident. How much will the insured have to pay?

Rationale

The insured will have to pay $10,400.

To calculate the amount the insured must pay, we first apply the deductible and then consider the coinsurance arrangement until the stop-loss limit is reached. The insured pays the deductible, followed by their share of the remaining costs, which is capped by the stop-loss limit.

A ($500) YOUR ANSWER

This amount represents only the deductible. The insured must pay this initial amount before any coinsurance applies. Since the total losses incurred are significantly higher than the deductible, the total out-of-pocket cost will be more than just the deductible.

B ($10,000) YOUR ANSWER

While this amount is the stop-loss limit, it does not reflect the correct calculation of the insured's total payment. The insured incurs costs that exceed the stop-loss limit after the deductible and coinsurance are applied, so the actual amount owed will be higher than this limit.

C ($10,400) CORRECT

This is the correct calculation: first, the insured pays a $500 deductible, leaving $49,500. The insurer covers 80% of this amount, meaning the insured is responsible for 20%, which amounts to $9,900. Adding the deductible brings the total payment to $10,400.

D ($10,600) YOUR ANSWER

This amount incorrectly assumes that the insured's total payment exceeds the calculated amount. After applying the deductible and coinsurance, the final payment does not reach this figure, as the correct total after applying all costs is $10,400.

Conclusion

In summary, the insured's payment consists of the initial deductible plus the coinsurance share of the remaining losses, ultimately totaling $10,400. This calculation confirms that the insured's financial responsibility is accurately determined by the combination of these factors, adhering to the policy's terms.

An insured has a stop-loss limit of $10,000, a deductible of $500, and an 80%/20% coinsurance. The insured incurs $50,000 of covered losses in an accident. How much will the insured have to pay?

The insured will have to pay $10,400.

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