South Carolina Personal Lines Practice Exam

Which of the following accurately describes a deductible?

1. A percentage of loss paid by the insurer

2. The flat amount deducted from a claim payment

3. The total amount insured must pay for coverage

4. The annual limit set for claims

The correct answer is: The flat amount deducted from a claim payment

A deductible is defined as the flat amount deducted from a claim payment. It represents the portion of the loss that the insured is responsible for before the insurance coverage kicks in. For instance, if a policy has a $500 deductible and the insured suffers a loss of $2,000, the insurer will pay $1,500 after the deductible is applied. This mechanism helps to mitigate small claims and ensures that the policyholder shares some of the responsibility for losses. The other options presented do not accurately reflect the nature of a deductible. A percentage of loss paid by the insurer describes a co-insurance scenario, where the insured pays a portion of the loss based on a pre-determined percentage. The total amount the insured must pay for coverage might refer to premiums or limits but does not capture the specific function of a deductible. An annual limit set for claims describes a cap on the total benefits that an insurer will pay in a given year, which is distinct from the concept of a deductible.