A contractor's employee is injured and files a workers' compensation claim. The claim is for $85,000 in medical expenses and lost wages. If the contractor's experience modification factor increases from 1.0 to 1.15, and the base premium is $12,000, what is the new annual premium?
Correct Answer
C) $13,800
New premium = Base premium × Experience modification factor = $12,000 × 1.15 = $13,800.
Why This Is the Correct Answer
The experience modification factor is applied as a direct multiplier to the base premium. $12,000 × 1.15 = $13,800. This reflects the increased risk classification due to the injury claim.
Why the Other Options Are Wrong
Option A: $14,400
$14,400 is incorrect. This would imply a multiplier of 1.2 ($12,000 × 1.2), not 1.15. The candidate may have rounded or confused the modification factor.
Option B: $13,200
$13,200 is incorrect. This corresponds to a multiplier of 1.1, not 1.15. The candidate likely used an estimate instead of calculating precisely.
Option D: $12,150
$12,150 is incorrect. This corresponds to adding only 1.25% ($12,000 × 0.0125 = $150), perhaps confusing the modification factor as a small surcharge rather than a full multiplier.
Memory Technique
Think: 'New Premium = Base × Mod.' The claim amount tells you WHY the mod went up, but it has zero role in the math. Cross it out mentally as soon as you see it.
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