Archive / Investment Adviser (Level 2) / Non-Life Insurance Products

nism-series-xb-property-insurance-deductible-copay-calculation[ INVESTMENT ADVISER (LEVEL 2) ]

Giri files an insurance claim of Rs. 50,000 for damages to his insured commercial property. The policy terms specify a compulsory deductible of Rs. 10,000 and a co-payment of 5% on the admissible balance. How much will the insurance company reimburse?

[ A ]Rs. 37,500

[ B ]Rs. 38,000[ CORRECT ]

[ C ]Rs. 40,000

[ D ]Rs. 50,000

Takeaway

After applying the Rs. 10,000 deductible and then a 5% co-payment on the admissible balance, the insurer reimburses Rs. 38,000 of Giri's Rs. 50,000 claim, so option B is correct.

Derivation

Admissible claim after deductible = Rs. 50,000 - Rs. 10,000 = Rs. 40,000. Co-payment = 5% of Rs. 40,000 = Rs. 2,000. Insurance reimbursement = Rs. 40,000 - Rs. 2,000 = Rs. 38,000. This question tests the correct sequencing of deductible and co-pay: the deductible is subtracted first to arrive at the admissible claim, and only then is the co-payment percentage applied to that reduced base — applying co-pay to the gross claim amount instead is the specific error the distractors are built to catch.

Why the others fail

A — Rs. 37,500

Applies the 5% co-pay to the gross Rs. 50,000 claim (Rs. 2,500) and then separately re-adds the Rs. 10,000 deductible, an incorrect order and combination of the two mechanisms.

C — Rs. 40,000

This is the admissible claim amount before the 5% co-payment is subtracted, i.e. the deductible step alone without applying the co-pay.

D — Rs. 50,000

Ignores both the Rs. 10,000 deductible and the 5% co-payment clauses entirely, reimbursing the full gross claim amount.