Property & Casualty Insurance Exam (National Portion)Property and Casualty Insurance BasicsEasy
A homeowner's policy includes a deductible of $1,000. If the homeowner files a claim for $5,000 due to a covered loss, what amount will the insurance company pay?
- A$6,000
- B$1,000
- C$5,000
- D$4,000
Show answer & explanationAnswer & explanation
Correct answer: D. $4,000
The deductible is the amount the insured must pay out-of-pocket before the insurance company begins to pay. In this case, the $1,000 deductible is subtracted from the $5,000 covered loss, leaving $4,000 for the insurer to pay.
Why the other options are wrong
- A. This would imply the insurer pays more than the loss, which is incorrect.
- B. This is the deductible amount, not what the insurer pays.
- C. This is the total loss, not what the insurer pays after the deductible.
Deductible
The amount of money that the insured must pay out of their own pocket before an insurance policy will pay for any expenses.
- Reduces the insurer's payout for a claim.
- Typically a fixed dollar amount or a percentage.
- Higher deductibles usually lead to lower premiums.
Memory trick: Don't Deduct, Just Pay the Rest!