Under a large deductible plan, the insured usually must provide the insurer with a letter of credit to

Under a large deductible plan, the insured usually must provide the insurer with a letter of credit to

• A. Comply with legal requirements
• B. Guarantee payment of losses up to the deductible.
• C. Offset the premium reduction
• D. Guarantee payment of losses above the deductible.

Answer: (B)

In a large deductible plan, the insured takes on a substantial self-insured portion and pays losses up to the deductible before the insurer’s coverage applies. To protect the insurer from the risk that the insured might not be able to fund those deductible losses, a letter of credit is provided as collateral. This letter guarantees payment of losses up to the deductible, giving the insurer a secure source of funding for those amounts if a claim occurs and the insured cannot pay. It isnures funding up to the deductible level, not for legal compliance, not to offset premium reductions, and not to cover losses above the deductible—those are handled by the insurer once the deductible is exceeded.

In a large deductible plan, the insured takes on a substantial self-insured portion and pays losses up to the deductible before the insurer’s coverage applies. To protect the insurer from the risk that the insured might not be able to fund those deductible losses, a letter of credit is provided as collateral. This letter guarantees payment of losses up to the deductible, giving the insurer a secure source of funding for those amounts if a claim occurs and the insured cannot pay. It isnures funding up to the deductible level, not for legal compliance, not to offset premium reductions, and not to cover losses above the deductible—those are handled by the insurer once the deductible is exceeded.