California Life and Health Insurance Practice Exam

An insured is protected from the expense of a catastrophic illness by which health insurance provision?

1. Co-insurance

2. Stop-loss

3. Deductible

4. Out-of-pocket maximum

The correct answer is: Stop-loss

The correct answer is centered around the concept of stop-loss protection, which is designed to limit the amount an insured individual has to pay out of pocket when faced with significant health expenses. The stop-loss provision ensures that, after the insured reaches a certain threshold of expenses, the insurance company will cover all additional costs. This means that, in the event of a catastrophic illness, there is a defined limit beyond which the insured is no longer financially responsible for medical expenses, effectively protecting them from financial ruin. In contrast, co-insurance and deductibles are features of health insurance that require the insured to share in the cost of care. Co-insurance involves a percentage split of costs after the deductible has been met, while a deductible is the amount that must be paid out-of-pocket before insurance begins to cover expenses. Both of these provisions do not provide the same level of protection from catastrophic expenses, as they require the insured to bear some financial burden regardless of the total medical costs incurred. The out-of-pocket maximum, while it does provide a cap on total spending, typically encompasses deductibles, co-insurance, and co-pays, representing a combined limit rather than specifically addressing the protection from catastrophic illness expenses as the stop-loss provision does.