A contractor's workers' compensation policy has a $2,500 deductible per claim. An employee injury results in $8,500 in medical costs. How much will the insurance company pay?
Correct Answer
C) $6,000
Insurance payment = Total costs - Deductible = $8,500 - $2,500 = $6,000. The contractor is responsible for the deductible amount.
Why This Is the Correct Answer
The insurance company pays the total claim minus the deductible. $8,500 − $2,500 = $6,000. The contractor absorbs the first $2,500 (the deductible), and the insurer covers the remaining $6,000.
Why the Other Options Are Wrong
Option A: $6,500
$6,500 results from subtracting $2,000 instead of $2,500 — a simple arithmetic error. Always subtract the exact deductible amount stated in the problem.
Option B: $8,000
$8,000 implies only a $500 deductible was applied, which does not match the $2,500 deductible in the question.
Option D: $8,500
$8,500 is the full claim amount with no deductible applied, as if the policy had a $0 deductible. The contractor's deductible obligation is ignored in this answer.
Memory Technique
Formula: Insurance Pays = Total Claim − Deductible. Think of the deductible as the contractor's 'first dollar' responsibility. The insurer only steps in after the contractor's share is met.
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