An Arizona contractor with 5 employees has a workers' compensation policy with a $500 deductible per claim. If there are 3 claims during the year totaling $8,400 in costs, how much will the insurance company pay?
Correct Answer
A) $6,900
Insurance pays total claims minus deductibles: $8,400 - (3 claims × $500 deductible) = $8,400 - $1,500 = $6,900.
Why This Is the Correct Answer
The deductible applies per claim, not per year. With 3 claims at $500 each, total deductibles = 3 × $500 = $1,500. The insurance company pays: $8,400 − $1,500 = $6,900.
Why the Other Options Are Wrong
Option B: $7,400
$7,400 results from subtracting only one $500 deductible ($8,400 − $500 = $7,900) or miscounting — perhaps applying a single $1,000 deductible. It does not correctly account for all three per-claim deductibles.
Option C: $7,900
$7,900 results from subtracting only one $500 deductible ($8,400 − $500 = $7,900). This is the most common error — treating the deductible as a single annual deductible rather than a per-claim deductible.
Option D: $8,400
$8,400 would be correct only if there were no deductible at all. Choosing this ignores the policy's deductible entirely.
Memory Technique
PER CLAIM = MULTIPLY. Each claim takes its own $500 bite. Count your claims, count your deductibles: 3 claims × $500 = $1,500 off the top.
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