## Definition ==Policy Adjustments== are modifications applied to a raw loss amount to determine the actual payment made by an insurer. Common adjustments include deductibles (amounts the policyholder pays first), coinsurance (a percentage shared between insurer and policyholder), and benefit limits (maximum amounts the insurer will pay). These adjustments transform the loss random variable into the payment random variable. > [!example]- A loss of $\$8{,}000$ occurs under a policy with a $\$1{,}000$ deductible, 80% coinsurance, and a $\$5{,}000$ benefit limit. What does the insurer pay? > 1. Apply deductible: $8{,}000 - 1{,}000 = 7{,}000$. > 2. Apply coinsurance: $0.80 \times 7{,}000 = 5{,}600$. > 3. Apply benefit limit: $\min(5{,}600,\ 5{,}000) = 5{,}000$. > > The insurer pays $\$5{,}000$.