Alabama Insurance Adjuster Practice Exam

Which term refers to the financial responsibility resulting from a loss that must be covered by the insured?

1. Deductible

2. Liability

3. Coverage limit

4. Premium

The correct answer is: Liability

The term that refers to the financial responsibility resulting from a loss that must be covered by the insured is liability. In the context of insurance, liability signifies the obligation of the insured to cover certain damages or losses, which can arise from various situations such as accidents or injuries. When an insured event occurs, the insurer typically covers a portion of the costs, while the insured may be required to take on some of the financial responsibility, which is categorized under liability. Liability is essential because it underscores the insured's obligation in the event of a claim. It aligns with the principle of accountability, where the insured is responsible for ensuring that they can cover losses up to a defined amount. Other terms in the list, such as deductible, coverage limit, and premium, relate to various aspects of insurance but do not directly describe the insured's financial responsibility for a loss. A deductible refers to the amount the insured pays out-of-pocket before the insurance kicks in, coverage limit defines the maximum amount the insurer will pay for a claim, and premium is the payment made for the insurance policy itself.