Texas Adjuster Practice Test

What is indicated by the term "deductible" in insurance?

1. The fee for the insurance policy itself

2. The amount a policyholder must pay before coverage applies

3. The total claim amount allowed

4. The percentage of risk shared with the insurer

The correct answer is: The amount a policyholder must pay before coverage applies

The term "deductible" in insurance refers specifically to the amount of money that a policyholder is required to pay out of pocket before their insurance coverage kicks in to cover the remaining costs of a claim. This is a critical concept within insurance policies, as it helps to mitigate the risk for insurers by encouraging policyholders to share in the financial responsibility of any losses. For instance, if an insured individual incurs a loss of $1,000 with a deductible of $200, they would need to pay the first $200 themselves, and the insurance company would then cover the remaining $800. This system effectively reduces the frequency of small claims being filed by policyholders, as they must absorb some of the costs themselves before the insurance will intervene. Understanding deductibles is crucial for both policyholders and adjusters, as it impacts the total payout for claims and the policyholder's out-of-pocket expenses. It also influences decisions during claims processing and negotiation between the insured and the insurer.