A contractor's insurance policy has a $1,000 deductible and covers 80% after deductible. For a $15,000 claim, how much does the contractor pay?
Correct Answer
C) $3,800
Contractor pays: Deductible ($1,000) + 20% of remaining amount (20% × $14,000 = $2,800) = $3,800 total.
Why This Is the Correct Answer
The calculation works in two steps: (1) Contractor pays the deductible first: $1,000. (2) Remaining loss = $15,000 − $1,000 = $14,000. Insurance covers 80% of $14,000 = $11,200; contractor pays the remaining 20% = $2,800. Total contractor cost = $1,000 + $2,800 = $3,800.
Why the Other Options Are Wrong
Option A: $1,000
$1,000 represents only the deductible portion and ignores the 20% coinsurance responsibility on the remaining $14,000. The contractor owes more than just the deductible.
Option B: $4,200
$4,200 appears to result from an incorrect calculation, possibly applying the 20% coinsurance to the full $15,000 ($3,000) and adding the $1,000 deductible, or from a math error in another sequence. The correct method applies 20% only to the post-deductible remainder.
Option D: $2,800
$2,800 is only the 20% coinsurance share of the post-deductible remainder. This figure ignores the $1,000 deductible the contractor must also pay, making it an incomplete answer.
Memory Technique
Use the two-step rule: 'D first, then split.' D = Deductible comes out first ($1,000). Then split the rest: 80% insurance, 20% you. Add your deductible back to your percentage share for total out-of-pocket.
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