Property & Casualty Insurance Exam (National Portion)Property InsuranceEasy
A homeowner's policy includes a deductible of $1,000. If a covered loss occurs resulting in $8,500 worth of damage to the dwelling, how much will the insurance company pay?
- A$9,500
- B$7,500
- C$1,000
- D$8,500
Show answer & explanationAnswer & explanation
Correct answer: B. $7,500
The deductible is the amount the insured must pay out-of-pocket before the insurance company pays for a covered loss. In this case, the $8,500 loss minus the $1,000 deductible equals $7,500 paid by the insurer.
Why the other options are wrong
- A. This amount is incorrect as it adds the deductible to the loss, which is not how deductibles work.
- C. This is the deductible, the amount the insured pays, not the insurer.
- D. This would be the amount paid if there were no deductible or if the deductible was $0.
Deductible
The amount of money the insured must pay out-of-pocket before an insurance company will pay a claim for a covered loss.
- Reduces claim payouts by the insurer.
- Typically applies per occurrence.
- Higher deductibles usually mean lower premiums.
Memory trick: Deductibles are like the 'first bite' of the loss the insured 'eats' before the insurer 'serves' the rest.