Renewal Insurance 1 Practice Test

Which statement about deductibles in property insurance is correct?

A deductible reduces premiums and discourages small claims A deductible reduces claims paid by the insurer, but not premiums A deductible is only a formality with no effect on premiums A deductible shares the risk with the insured, reduces premiums, and discourages small claims

Correct Answer:

A deductible shares the risk with the insured, reduces premiums, and discourages small claims

Explanation:

Deductibles are a cost-sharing feature: the insured must pay a portion of a loss before the insurer pays. This shifts part of the risk to the insured, which lowers the insurer’s expected loss and, as a result, can lead to lower premiums. It also discourages small claims because if the loss falls below the deductible, there’s no payout from the insurer, so filing a minor claim isn’t worth it. The best statement captures all of this: sharing the risk, reducing premiums, and discouraging small claims. The other choices miss one or more of these effects—for example, saying premiums aren’t affected, or that the deductible is just a formality—both of which aren’t accurate.

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