State Farm Insurance License Practice Exam

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

1. The maximum amount the insurer will pay for a loss

2. The amount the insured pays before insurance kicks in

3. The total value of coverage provided by a policy

4. The percentage of the value insured that is covered

The correct answer is: The amount the insured pays before insurance kicks in

In property insurance, the term 'deductible' refers to the specific amount that an insured individual must pay out-of-pocket before the insurance coverage begins to reimburse for a covered loss. Deductibles serve as a form of cost-sharing between the insurer and the insured, which can help lower the premiums for the policyholder. By requiring the insured to pay a certain amount before the insurance takes effect, it also disincentivizes small or frequent claims, encouraging policyholders to manage their risks more effectively. The other options refer to different aspects of insurance policies. The maximum amount the insurer will pay for a loss is related to the policy limit. The total value of coverage provided by a policy describes the total insured amount, which is not the same as a deductible. The percentage of the value insured that is covered can refer to various coverage types or specific conditions within the policy but does not define a deductible. Thus, focusing on the deductible highlights its role as a threshold that must be met before insurance payments are initiated.