Question

A small manufacturer has purchased $200,000 workers compensation insurance and following losses have taken place during that year. If insurance contract provision specified aggregate deductible of $20,000, what is the amount of total compensation paid by the insurer? Loss A - $9,500 Loss B - $25,300 Loss C - $22,700 The amount of total compensation paid by the insurer is $Answer .

Answer 1

Sol :

Workers compensation insurance = $200,000

Aggregate deductible = $20,000

Loss A = $9,500

Loss B = $25,300

Loss C = $22,700

To determine total compensation paid by the insurer is as follows,

An aggregate deductible is a type of deductible that applies for an entire year in which the insured (Policyholder) absorbs all losses until the deductible level is reached, at which point the insurer pays for all loses over the specified amount. In other words, if a policyholder files several claims or one large claim, they must pay out of pocket up to a certain dollar sum. Subsequently, coverage kicks in, and the insurer starts making payments.

In our case total losses are = $9,500 + $25,300 + $22,700 = $57,500.

Without an specified aggregate deductible, the insured (policyholder) would be responsible to pay the entire claim of $57,500, however due to aggregate deductible the total compensation paid by the insured (policyholder) limits to $20,000.

The amount of total compensation paid by the insurer is $57,500 - $20,000 = $37,500

Therefore the amount of total compensation paid by the insurer is $37,500 which is above the specified aggregate deductible limit.