Georgia Property & Casualty Practice Exam

In property insurance, what does the term "deductible" refer to?

1. The amount an insurer pays for a claim

2. The amount the policyholder must pay out-of-pocket before coverage kicks in

3. The total amount of coverage offered by a policy

4. The value of the insured property

The correct answer is: The amount the policyholder must pay out-of-pocket before coverage kicks in

The term "deductible" in property insurance refers to the specific amount that the policyholder is required to pay out-of-pocket before the insurance coverage begins to pay for a claim. This is a common feature in insurance policies that helps to reduce the number of small claims and encourages responsible behavior among policyholders, as they are financially invested in the loss from the very beginning. When a covered loss occurs, the policyholder first pays the deductible amount, and then the insurance company covers the remaining costs up to the limits of the policy. For example, if a policy has a $1,000 deductible and a claim is made for $5,000, the policyholder would pay the first $1,000, and the insurer would cover the remaining $4,000. The other options refer to different aspects of an insurance policy: the amount an insurer pays for a claim pertains to the claims settlement process, the total coverage amount offered by a policy relates to the limits outlined within the insurance contract, and the value of the insured property refers to the appraised or market value of the property covered under the policy. Understanding the role and function of the deductible is crucial for policyholders when considering their financial exposure in the event of a loss.