A Michigan contractor's workers' compensation policy has a $2,500 deductible. An employee injury results in $8,000 in medical costs. How much will the contractor pay out of pocket?
Correct Answer
B) $2,500
The contractor pays the deductible amount of $2,500. The workers' compensation insurance covers the remaining $5,500 in medical costs.
Why This Is the Correct Answer
The correct answer is B ($2,500). The deductible is the amount the policyholder must pay before insurance coverage applies. With a $2,500 deductible and $8,000 in total medical costs, the contractor pays the first $2,500 out of pocket, and the insurance policy covers the remaining $5,500.
Why the Other Options Are Wrong
Option A: $8,000
$8,000 is incorrect. The contractor would only pay the full $8,000 if there were no insurance at all or if the deductible exceeded the total claim. With a $2,500 deductible on an $8,000 claim, the insurance covers the difference.
Option C: $5,500
$5,500 is incorrect. This is the amount the insurance company pays after the deductible is met, not the contractor's out-of-pocket cost. Confusing the insurer's share with the policyholder's share is a common reversal error.
Option D: $0
$0 is incorrect. A $0 answer would be correct only if the policy had no deductible or if a full-coverage endorsement applied. With a $2,500 deductible, the contractor always pays the first $2,500 of any claim.
Memory Technique
Deductible = your portion first. Insurance covers the rest. Contractor pays: $2,500 (deductible). Insurer pays: $8,000 − $2,500 = $5,500. Simple subtraction after identifying which piece is yours.
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