Future Business Leaders of America (FBLA) Agribusiness Practice Test

What does the term 'deductible' refer to in insurance?

1. The amount you pay before insurance covers the rest

2. The maximum amount insurance will pay for a claim

3. The total cost of a policy

4. The percentage of a claim you are required to cover

The correct answer is: The amount you pay before insurance covers the rest

The term 'deductible' in insurance specifically refers to the amount that a policyholder must pay out-of-pocket before their insurance coverage kicks in to cover the remaining costs. For example, if a policy has a deductible of $500, the insured individual must pay the first $500 of any claim they make. After this amount is met, the insurance company will typically pay for the remaining balance of covered expenses. This concept is crucial because it can influence how much a policyholder will ultimately pay for a claim. A higher deductible might mean lower monthly premiums, but it also means that the insured individual will need to bear more initial costs in the event of a claim. Understanding the deductible is important for effectively managing personal finances and making informed decisions about insurance policies. Other terms mentioned in the question relate to different aspects of insurance. For instance, the maximum amount an insurer will pay for a claim is known as the coverage limit, not the deductible. The total cost of a policy refers to premiums or fees paid by the policyholder, and the percentage of a claim that is the policyholder's responsibility to cover is typically referred to as co-insurance. Each of these terms provides insight into the structure and costs associated with insurance, but none directly