Florida Insurance Licensing Practice Exam

A deductible is a specific amount that a policyholder must pay out of pocket before an insurance company begins to pay for covered claims. It represents a portion of the financial responsibility that the insured retains, ensuring that they have a stake in the loss and are somewhat involved in the decision to file a claim. For example, in the case of a car insurance policy with a $500 deductible, if an accident causes $2,000 in damage, the policyholder pays the first $500, and the insurer pays the remaining $1,500.

This concept is critical because it helps limit the number of small claims that policyholders submit, which can lead to higher premiums for everyone if abused. This mechanism is beneficial both for insurers, in terms of risk management, and for policyholders, as higher deductibles usually lead to lower premium costs.

The other choices include aspects of insurance but do not accurately define a deductible. The total premium amount pertains to what the insured pays for the policy, the value of the property defines the asset covered, and fees charged by insurance agents are costs associated with obtaining insurance rather than a deductible amount.