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Large Deductible Plan

A deductible program designed for large employers usually with multistate exposures. The size of deductibles for these plans are generally in a range from $100,000 to $1,000,000 per occurrence. The insurer makes all payments as it would under a standard workers compensation policy. The insured then reimburses the insurer. The insured also puts up a security for the deductible exposure.

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The large deductible plan provides the same workers compensation insurance coverage as a guaranteed insurance plan. As a matter of fact the large deductible plan is a guaranteed insurance plan with the addition of a special deductible endorsement. As with other deductible plans, when allowed by the state you'll find certain requirements are outlined by each states workers comp authority which apply to the application of this program. Most states will have a minimum premium requirement level before an employer may qualify for the plan and may range from $100,000 to $500,000.

An important aspect of the large deductible plan that must be considered is the aggregate stop loss limit. This limit would be expressed as the total amount that the insured employer would be obligated to pay for under the deductible plan. It is very important as without a stop loss the employer would be liable to pay his deductible on every claim and could have a very adverse effect on the employers financial security. This then brings up the need of security for the insurance company when large deductible plans are used. Because the insurance company pays the claim as no deductible exists then looks to the employer for reimbursement of the deductible, the insurance company will ask for financial security from the employer. This security may be put up by the employer in the form of a Letter of Credit (LOC) or some form of cash collateral. This collateral will be drawn on by the insurance company in the event the employer is unable to pay its deductible.

Finally, it is common that the insurance company looks closely at the employer from a financial point of view. After all they need to know the employer has the ability to pay its deductible. Generally an escrow account will be established by the employer from which deductible payments are made to the insurance carrier. Of course these types of items will be outlined within the policy contract.

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