Question

Nick and Sheila Preston are married and have purchased a comprehensive major medical policy which covers them and their two sons, Wally and Brent. The policy has a $500 calendar-year family deductible, a $2,500 stop-loss provision, and an 80% coinsurance clause. The following losses occur: On January 1, Sheila was treated for an infection at a cost of $200; on July 1, Wally was treated for an injury suffered while waterskiing at a cost of $10,000; on December 5, Nick underwent eye surgery at a cost of $1,500; and on January 5 of the following year, Brent was treated for a broken leg at a cost of $2,000.

How much will the insurer pay for each of these losses? (Fill integers into the following blanks. Round to the nearest integers and do not put “thousand separators.”)

a. January 1 loss: $ .

b. July 1 loss: $ .

c. December 5 loss: $ .

d. January 5 in the next year loss: $ .

Answer 1

Answer :

Calculation of Amount that Insurer will pay for each of the losses :

a.) January 1 : Loss $0.

Reason : Given Sheila was treated for an infection for $200. But @00 amount of deductible will be adjusted so the net amount to be paid by insurer 0 (200 - 200).

(b.) July 1: Loss $7,760

Reason : Given Wally was treated for an injury suffered while waterskiing at a cost of $10,000 , the amount of Deductible remaining is 300 (500 - 200) which will be adjuste from 10000. But as their is coinsurance plan Insurer has to pay 7760 [(10000 - 300) * 0.80]

(c.) December 5 :Loss $1440.

Reason : , Nick underwent eye surgery at a cost of $1,500 , there is no deductible Amount left as all 500 has been utilised Therefore Amount to be paid by insurer is 1200 . [(1500 - 0) * 0.80] But there is stop loss provision of 2500 and the amount paid by Nick and Sheila Preston in all the previous dates is 2440 [200 (on january 1) + 2340 (10000 - 7760) on July 1] Therefore they now need to pay 60 (2500 - 2440) only due to stop loss provision . Therefore Insurer now has to pay 1440 (1500 - 60)

(d.) January 5 in the next year Loss $1200

Reason :  Brent was treated for a broken leg at a cost of $2,000.Deductible now would be 500 . Amount to be paid by insurer 1200 [ (2000 - 500) * 0.80]