Other Than Life (OTL) Practice Exam

Which statement about a deductible is TRUE?

1. A deductible cannot be used to reduce the premium on a policy

2. A deductible may disappear if the amount of the loss exceeds the deductible

3. A deductible must apply individually to each item on a policy

4. A deductible is used to encourage clients to carry adequate insurance

The correct answer is: A deductible may disappear if the amount of the loss exceeds the deductible

A deductible represents the amount that a policyholder must pay out-of-pocket before an insurance provider begins to cover the remaining expenses of a claim. In the context of statement B, it's accurate to say that a deductible may seem to "disappear" if the amount of the loss exceeds the deductible. This is because the insurance company will cover the claim amount that exceeds the deductible. For example, if a policy has a $1,000 deductible and the total loss is $5,000, the insurer would pay $4,000 after the deductible is accounted for. The concept embedded in statement B captures the relationship between the deductible and the overall claims process effectively. It's important for policyholders to understand that while deductibles need to be paid first, they don't negate the coverage provided by the insurance policy; they just determine the initial share of the loss that the policyholder must bear. The incorrect options have various issues: The first option suggests that a deductible has no impact on premium reduction, but higher deductibles often lead to lower premiums. The third implies that deductibles apply to every item on a policy, which isn't always true since some policies have aggregate deductibles. The fourth option claims that deductibles encourage adequate insurance, but they can also lead