Morris Company self-insures its workers compensation loss exposure.The risk manager of Morris Company is concerned about the possible impact of a single catastrophic claim.She decided to set a retention limit of $500,000 per-claim,and to purchase insurance that will be begin to pay once Morris Company has paid $500,000 on a single claim.The insurance the risk manager purchased is called
A)captive insurance.
B)excess insurance.
C)primary insurance.
D)umbrella insurance.

Question

Quizplus · Accepted Answer

The insurance purchased by the risk manager of Morris Company is excess insurance because it only begins to pay after Morris Company has paid the retention limit of $500,000 on a single claim. This type of insurance is designed to provide coverage for losses that exceed a certain threshold or retention limit. Captive insurance is a form of self-insurance where an organization establishes its own insurance company to cover its risks, primary insurance is the first layer of insurance coverage, and umbrella insurance provides additional coverage beyond the limits of primary insurance. None of these options fit the description of the insurance purchased by Morris Company.

Morris Company Self-Insures Its Workers Compensation Loss Exposure