Question 4 (17 Marks)

a. Why are deductibles used in insurance? 4 marks

b. Melon Convenient Store incurred the following insured losses, in the order given, during the current policy year: Loss A ,Amount of loss $5,000

Loss B, Amount of loss $8,000

Loss C, Amount of loss $12,000 How much would the insurance company pay for each loss if the Melons policy contained the following type of deductible? i. $1,000 straight deductible

ii. $20,000 annual aggregate deductible 6 marks

c. Peter has a major medical insurance policy with a $8,000 deductible and an 80 20 percentage participation clause. Last month, Peter was hospitalized and his covered medical expenses were $110,000.

i. How much of the $110,000 will be paid by the insurer under Peters major medical insurance policy? How much will Peter have to pay himself? Show all your calculations. 4 marks

ii. Explain the purpose of a percentage participation clause in medical health insurance. 3 marks