Alabama Insurance Adjuster Practice Exam

Which of the following best describes the term 'deductible' in an insurance policy?

1. The amount the insurer pays for a claim

2. The amount policyholders pay out-of-pocket before claims are settled

3. The total maximum limit of coverage

4. The fees paid monthly for coverage

The correct answer is: The amount policyholders pay out-of-pocket before claims are settled

The term 'deductible' in an insurance policy refers to the amount that policyholders must pay out-of-pocket before the insurance coverage kicks in to settle a claim. When a claim is made, the deductible is subtracted from the total amount of the claim, meaning that the insurer only pays for the remaining balance beyond the deductible. This structure encourages policyholders to manage smaller claims themselves and helps keep insurance premiums at a more manageable level, as higher deductibles typically correlate with lower premium costs. In contrast, the other options do not accurately define a deductible. The amount the insurer pays for a claim relates to the coverage provided, rather than the deductible itself. The total maximum limit of coverage refers to the maximum amount that an insurance policy will pay for covered losses, which is distinct from the deductible amount. Lastly, the fees paid monthly for coverage pertain to the premium payments, not the deductible, which is a specific out-of-pocket cost incurred when filing a claim.