Which statement is true regarding large deductible plans?

Which statement is true regarding large deductible plans?

• A. Under a large deductible plan, the insured is responsible for adjusting and paying losses up to the deductible.
• B. Under a large deductible plan, the insurer adjusts and pays all claims.
• C. A large deductible plan has high start-up and administrative costs for the insured.
• D. A large deductible plan manages cash flow uncertainty better than a guaranteed cost plan.

Answer: (D)

In a large deductible plan the insured retains the first-dollar losses up to a defined deductible, with the insurer stepping in to pay losses above that amount, often backed by stop-loss coverage. This arrangement shifts part of the cost risk to the insured but reduces the fixed premium compared to a guaranteed-cost policy. Because the insured can fund the deductible and layer in stop-loss protection to cap total exposure, annual cash outlays can be more controllable and predictable than under a guaranteed-cost plan. The insured benefits from a lower fixed premium while gains protection against catastrophic losses, making cash flow uncertainty easier to manage overall. The other statements miss that core dynamic. The insured’s role in handling losses up to the deductible is partially true but not the defining feature, and the insurer does not adjust and pay all claims under this structure. Also, start-up and administrative costs for the insured are not inherently high in large deductible plans; the emphasis is on reduced fixed costs and capped total exposure through stop-loss protection.

In a large deductible plan the insured retains the first-dollar losses up to a defined deductible, with the insurer stepping in to pay losses above that amount, often backed by stop-loss coverage. This arrangement shifts part of the cost risk to the insured but reduces the fixed premium compared to a guaranteed-cost policy. Because the insured can fund the deductible and layer in stop-loss protection to cap total exposure, annual cash outlays can be more controllable and predictable than under a guaranteed-cost plan. The insured benefits from a lower fixed premium while gains protection against catastrophic losses, making cash flow uncertainty easier to manage overall.

The other statements miss that core dynamic. The insured’s role in handling losses up to the deductible is partially true but not the defining feature, and the insurer does not adjust and pay all claims under this structure. Also, start-up and administrative costs for the insured are not inherently high in large deductible plans; the emphasis is on reduced fixed costs and capped total exposure through stop-loss protection.