Question

Explain the similarities and differences among the Guaranteed Cost, Self-Insurance, and Large Deductible approaches.

Answer 1

Guaranteed Cost Insurance- It is a form of insurance in which the insured pays a fixed premium ( or a fixed rate that is applied to a paricular exposure amount) for the policy term , irrespective of the number and amount of losses that occur during the policy term.

Self Insurance- It is basically a risk management plan in which a corporation or individual sets aside a pool of money to use as a remedy for any unexpected loss.It may be more economical than buying insurance from a third party. The idea is that since an insurance company makes a profit by charging premium in excess of the expected loss, a self insured perosn would be able to save by setting aside the amount of money that he would have otherwise paid to the Insurance company.

Large Deductible-  It is a cash flow workers compensation insurance program which allows the insured to retain a portion of each loss through a subtantial deductible and to transfer on to a insurer's losses in excess of that deductible.The insure also handles the losses falling below teh deductible and bills back these costs to the insured.