What is one purpose of a deductible in an insurance policy?

What is one purpose of a deductible in an insurance policy?

• A. To increase the premium
• B. To eliminate small claims
• C. To provide full coverage
• D. To extend coverage limits

Answer: (B)

A deductible in an insurance policy serves to eliminate or reduce the number of small claims made by policyholders. When a policy includes a deductible, it requires the insured to pay a specified amount out of pocket before the insurance coverage kicks in. This means that for minor losses or damages that fall below the deductible amount, the insured will not file a claim. By doing this, insurers can limit the administrative costs and resources spent on processing numerous small claims, which can be inefficient and costly. Additionally, having a deductible encourages policyholders to be more cautious and responsible in their risk management, as they are financially responsible for smaller losses. This mechanism helps maintain a more sustainable balance for insurance companies by discouraging claims for minor incidents.

A deductible in an insurance policy serves to eliminate or reduce the number of small claims made by policyholders. When a policy includes a deductible, it requires the insured to pay a specified amount out of pocket before the insurance coverage kicks in. This means that for minor losses or damages that fall below the deductible amount, the insured will not file a claim.

By doing this, insurers can limit the administrative costs and resources spent on processing numerous small claims, which can be inefficient and costly. Additionally, having a deductible encourages policyholders to be more cautious and responsible in their risk management, as they are financially responsible for smaller losses. This mechanism helps maintain a more sustainable balance for insurance companies by discouraging claims for minor incidents.