Which term describes a rating plan in which the insured receives a premium reduction for reimbursing the insurer for losses up to a substantial per-occurrence limit?

Which term describes a rating plan in which the insured receives a premium reduction for reimbursing the insurer for losses up to a substantial per-occurrence limit?

• A. Large deductible plan
• B. Guaranteed cost insurance
• C. Excess coverage insurance
• D. Self-insurance

Answer: (A)

In this arrangement, the insured takes on a large portion of the loss exposure by reimbursing the insurer for losses up to a substantial per-occurrence deductible. Because the insured assumes more of the loss risk, the insurer can offer a lower base premium, effectively giving a premium reduction in exchange for that self-funding. Insurance coverage from the insurer then applies above the deductible up to the policy limit. This setup rewards the insured for funding losses up to the deductible and shifts part of the cost of risk back to them. This matches a large deductible plan. The other options don’t fit: guaranteed-cost policies set premiums independent of claims experience; self-insurance alone isn’t structured as an insurance contract with a premium in exchange for loss reimbursement; excess coverage pays only above a high limit and doesn’t involve a premium reduction for reimbursing losses up to a deductible.

In this arrangement, the insured takes on a large portion of the loss exposure by reimbursing the insurer for losses up to a substantial per-occurrence deductible. Because the insured assumes more of the loss risk, the insurer can offer a lower base premium, effectively giving a premium reduction in exchange for that self-funding. Insurance coverage from the insurer then applies above the deductible up to the policy limit. This setup rewards the insured for funding losses up to the deductible and shifts part of the cost of risk back to them.

This matches a large deductible plan. The other options don’t fit: guaranteed-cost policies set premiums independent of claims experience; self-insurance alone isn’t structured as an insurance contract with a premium in exchange for loss reimbursement; excess coverage pays only above a high limit and doesn’t involve a premium reduction for reimbursing losses up to a deductible.