Property & Casualty Insurance Exam (National Portion)Property and Casualty Insurance BasicsEasy
A commercial property policy states that the insurer will pay for covered losses up to the policy limit, but only after the insured has paid the first $2,500 of any loss. This initial amount the insured must bear is known as the:
- ALimit of Liability
- BCoinsurance
- CPremium
- DDeductible
Show answer & explanationAnswer & explanation
Correct answer: D. Deductible
A deductible is the amount of money the insured must pay out-of-pocket before their insurance coverage begins to pay for a covered loss. It is a common feature in property insurance policies.
Why the other options are wrong
- A. The limit of liability is the maximum amount the insurer will pay for a loss.
- B. Coinsurance relates to the percentage of property value that must be insured.
- C. A premium is the cost of the insurance policy itself.
Deductible
The specified amount of money that the insured must pay out-of-pocket before an insurer will pay a claim.
- Reduces small claims, lowering administrative costs
- Higher deductibles typically result in lower premiums
- Applies per occurrence or per policy period depending on type
Memory trick: DEDUCTIBLE is your first payment, after that, INSURANCE takes over.