Property & Casualty Insurance Exam (National Portion)Property InsuranceEasy
A business owner's commercial property policy covers damage to the building and its contents. If a fire causes $100,000 in damage to the building and $50,000 in damage to the business's personal property, and the policy has a single $1,000 deductible, how much will the insurer pay?
- A$150,000
- B$50,000
- C$99,000
- D$149,000
Show answer & explanationAnswer & explanation
Correct answer: D. $149,000
When a single occurrence causes damage to multiple covered properties (e.g., building and contents) under the same policy, typically only one deductible is applied to the total loss. The total loss is $100,000 (building) + $50,000 (contents) = $150,000. Applying the $1,000 deductible results in a payout of $149,000.
Why the other options are wrong
- A. This is incorrect; the deductible must be applied to the total loss.
- B. This is incorrect; this only accounts for the personal property damage.
- C. This is incorrect; this only accounts for the building damage minus the deductible.
Deductible Application (Single Occurrence)
In many property insurance policies, if a single event causes damage to multiple covered items or coverages, only one deductible is applied to the total amount of the loss.
- Applies per occurrence, not per item or coverage.
- Reduces the total amount payable by the insurer.
- Encourages insureds to bear minor losses themselves.
Memory trick: One big event, one small fee, then the policy sets you free!