Property and Casualty Insurance Practice Exam

In which scenario might a policyholder encounter a deductible?

1. When a primary insurance company accepts a claim

2. When submitting a claim for a first-party loss

3. When their insurance policy has expired

4. When their policy is classified as excess insurance

The correct answer is: When submitting a claim for a first-party loss

A deductible is a specific amount that a policyholder must pay out-of-pocket before their insurance coverage kicks in to cover the remaining costs associated with a claim. This amount reduces the insurance company's payout and is a standard feature in many insurance policies, including health, auto, and property insurance. When a policyholder submits a claim for a first-party loss, they are typically involved in a situation where they are claiming benefits for damages or losses to their own property. In this context, the deductible comes into play, as it represents the portion of the claim that the policyholder is responsible for paying before the insurance company contributes to the rest of the covered expenses. The deductible is applied to ensure that the insured shares in the costs, which discourages minor claims and helps keep insurance premiums manageable. In scenarios involving the acceptance of a claim by a primary insurer or the expiration of a policy, deductibles do not apply or are not a factor. Similarly, excess insurance generally comes into effect after primary policies have paid up to their limits, typically not imposing a deductible relative to claims made under a primary policy. Hence, submission of a first-party loss claim is the scenario where encountering a deductible is most relevant.