A contractor purchases workers compensation insurance with a $2,500 deductible. An employee injury results in $8,750 in medical costs. How much will the insurance company pay?
Correct Answer
D) $6,250
Insurance payment = Total costs ($8,750) - Deductible ($2,500) = $6,250
Why This Is the Correct Answer
The insurance company pays the total medical costs minus the deductible the contractor is responsible for: $8,750 − $2,500 = $6,250. The deductible is the contractor's out-of-pocket share before coverage kicks in.
Why the Other Options Are Wrong
Option A: $6,750
$6,750 is incorrect. This would imply a deductible of only $2,000, not the $2,500 stated in the policy.
Option B: $7,250
$7,250 is incorrect. This would imply a deductible of only $1,500, which does not match the $2,500 deductible in the policy.
Option C: $8,750
$8,750 is incorrect. If the insurer paid the full amount, the deductible would serve no purpose. The contractor must absorb the $2,500 deductible first.
Memory Technique
Think of a deductible as a 'first dollar' responsibility: the contractor eats the first $2,500, and insurance covers the rest. Total − Deductible = Insurer's Payment.
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