Which term describes a program where the insured pays a deductible and the insurer covers the remainder for smaller losses?

Which term describes a program where the insured pays a deductible and the insurer covers the remainder for smaller losses?

• A. Guaranteed cost
• B. Small deductible program
• C. Retrospective rating plan
• D. Assigned risk/residual market

Answer: (B)

In this arrangement, the insured takes on part of the loss by paying a deductible, while the insurer covers the remaining amount for smaller losses. This is known as a small deductible program. It blends cost control with protection: the insured pays less in premium than a fully insured (guaranteed-cost) plan but still has coverage for losses above the deductible threshold. This differs from a guaranteed-cost plan, where the premium is fixed and there’s typically no deductible sharing. It also isn’t a retrospective rating plan, which adjusts the premium after the policy year based on actual losses, nor is it the assigned risk/residual market, which is a market mechanism for placing high-risk insureds.

In this arrangement, the insured takes on part of the loss by paying a deductible, while the insurer covers the remaining amount for smaller losses. This is known as a small deductible program. It blends cost control with protection: the insured pays less in premium than a fully insured (guaranteed-cost) plan but still has coverage for losses above the deductible threshold.

This differs from a guaranteed-cost plan, where the premium is fixed and there’s typically no deductible sharing. It also isn’t a retrospective rating plan, which adjusts the premium after the policy year based on actual losses, nor is it the assigned risk/residual market, which is a market mechanism for placing high-risk insureds.