78. 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?
Answer: C
The insured will have to pay $10,400.
To determine the amount the insured will have to pay, we must first account for the deductible and the coinsurance on the losses incurred after the deductible is met, while ensuring it does not exceed the stop-loss limit.
A) $500
Option A is incorrect because it only accounts for the deductible. The insured must pay the deductible of $500, but this amount does not reflect the total payment after considering the coinsurance and the total losses incurred.
B) $10,000
Option B is incorrect as it represents the stop-loss limit. While the stop-loss limit does cap the insured's total out-of-pocket expense, the calculation of the insured's payment must first include the deductible and the coinsurance on the amount exceeding that deductible.
C) $10,400
Option C is correct. After applying the $500 deductible to the $50,000 in losses, the remaining amount is $49,500. The insured is then responsible for 20% of that amount due to the coinsurance, which equals $9,900. Adding the deductible results in $500 + $9,900 = $10,400, which is below the stop-loss limit.
D) $10,600
Option D is incorrect because it inaccurately calculates the total payment. This amount may mistakenly include the stop-loss limit without properly applying the deductible and coinsurance calculation, resulting in an overestimate of the insured's responsibility.
Conclusion
The calculation confirms that the insured will pay a total of $10,400, comprised of the deductible and the coinsurance on the remaining losses after the deductible is applied. Other options either miscalculate the application of the deductible or fail to consider the coinsurance properly, leading to incorrect total amounts.